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Within this section of Business Tools, we reproduce a number of contracts and forms that are useful in forming and operating a business with a maximum level of asset protection. From the earliest agreement to start a company to ways to remove valuable assets from a growing business, these forms cover the most popular strategies and gives clues as to how best to structure your operation. Equipment leases and various financing arrangements are also covered, allowing you the greatest protections under the law.
The following Sample Open-Ended Security Agreement can be used to accomplish one of the strategies advocated in this book--funding the business entity (the operating entity) partly with debt, and encumbering the entity's assets with liens that secure the debt and run to the holding entity or to the owner personally. In this way, even the owner's equity interest may be protected. To accomplish these purposes, the owner personally (or his holding entity) would be the secured party, and the operating entity would be the borrower. The agreement is very broad, applying to all existing and future extensions of credit, in any form.
This form might be first executed in conjunction with the following Sample Open-Ended Promissory Note, but this is not necessary. If a promissory note was not executed because the form first secured some other obligation (e.g., unpaid salary), the reference to a "Promissory Note" in paragraph 1 should be deleted, and a description of the other obligation should be substituted in its place. (Of course, a promissory note might be used to accrue interest on an obligation such as unpaid salary).
The Sample Open-Ended Promissory Note should be used when the owner (or his holding entity) lends money, or otherwise extends credit (e.g., unpaid salary), to the operating entity. It also can be used whenever the owner or his holding entity extends any type of credit to the operating entity in the future, if the extension of credit specifically incorporates the note.
This form normally should be perfected by the execution and filing of the Sample UCC1 Financing Statement, which follows as well. Note that each state has its own version of the UCC1 financing statement. Some states will accept a generic form, but charge extra for this, while other states accept only their prescribed form. It is recommended that the particular state's actual UCC1 financing statement form be used. This form can be obtained through the appropriate state's secretary of state's office, where the form also usually is filed.
These files contain a one or two-page documents in rich text format (RTF) that is suitable for use with most word processing programs used in the Windows environment.
These funding forms include sections on the following:
- the parties involved, what is being borrowed or loaned, and the terms of repayment
- what collateral is secured by these agreements
- how to perfect the lien on the secured property
Using Holding and Operating Companies