Bankrupt But Still Worth Millions?

Bankrupt but still worth millions – is that even possible? This article will show you that going bankrupt is not the same as being worthless. Some entrepreneurs smartly get out of this predicament still as champions as they are, still with millions in their bank accounts, assets, and business, how could these high-spirited persons save the millions from the brutal wave of bankruptcy? Robert Kiyosaki, one of the ‘champions”, will share his secrets.

Is Robert Kiyosaki Now Bankrupt?

Robert Kiyosaki is the author of the “Rich Dad, Poor Dad” books as well as a respectable guru in financial management and strategy. In 2012, he gave a huge shock to the public not because of his release of a new book but his file for bankruptcy protection for Rich Global LLC, one of his ten companies.

The company must pay the Learning Annex as much as US$24mil as royalties generated from the appearance of Rich Global’s event at Madison Square Garden, in 2012. Kiyosaki, under the flag of Rich Global, had used the Learning Annex platform in the preparation of his corporate events such as speaking engagements.

From the event, both companies generated US$ 438 million with about 10% (approximately $45 million) belonging to Rich Global as royalties. However, Rich Global reportedly did not share the rest of the generated profit to the Learning Annex until the court ordered the company to pay the Learning Annex just about 5% (approximately $24 million).

This scene has left a question in public’s mind: Is the author bankrupt now? In fact, he is not. Rich Global? Apparently, yes.

Kiyosaki, the author of 15 books, is still worth US$80 million. In fact, Kiyosaki still has 9 companies that operate normally. Also, Rich Global was one with the least amount of assets, US$ 1.8 million after the bankruptcy filing. No wonder, the celebrated author is still worth millions!

Kiyosaki’s financial move to file for protection for bankruptcy gives several valuable lessons in how to protect your personal finance when your business went under. These are the lessons that you can take.

Lesson 1. Select the Right Business Type

In the term of initial cost, Trading Co. or Enterprise (Sole Proprietor / Conventional Partnership) is cheaper than Limited Liability Company (LLC) (known as Sdn Bhd in Malaysia). However, the first is not the wisest choice when it comes to separating your personal assets from your business assets. In such a sole proprietorship, you are, alone, responsible for any business liabilities that can lead to personal bankruptcy. Thus, if your company is about to go bankrupt or is in debt that cannot be paid, your plot of land, house, and other assets may be at risk. The court may take this personal wealth to pay the debt.

In Kiyosaki’s case, he has protected his personal wealth from his business liabilities from the very beginning with the choice of LLC as his business type. Thus, in the lawsuit by the Learning Annex, Kiyosaki does not face great economic loss.

To set up LLC, you will need to prepare big cost. But, this business type gives protection from any legal claims. You are not responsible for your business debts or damages.

Lesson 2. Separate Your Personal Assets from Business Assets

From the very beginning, personal wealth must be separated from business assets – completely. Use a different checkbook for business, and use your company name on all corporate documents or contracts. You need to do separation from the very beginning. This is what is done by Kiyosaki. He set up his business as LLC, Rich Global LLC. As a result, even though he encountered a lawsuit, he had his personal wealth secured and untouchable by the court. Besides, it is a wise action to run multiple companies for the sake of the business stability.

Lesson 3. Never Ever Think of Shortcuts

Shortcuts in business is not good. Even, in many cases, such shortcuts create further problems in the future. So, you have to foresight the risks or consequences before you decide to do something. LLC is another proof. This business type avoids the consequences of negligence or fraud. Also, it protects you from misunderstandings in business which often occurs between two or more parties.

Kiyosaki’s case has shown us how important it is to keep your personal wealth and business assets completely separate through LLC when your company is about to go bankrupt. Besides, this business type gives us more benefits such as continuous existence, transferable ownership, lower corporate tax rates, and better access to capital. Regarding its benefits, it is advised to set up your business as LLC despite its high initial cost. It is especially important if you want to establish a strong company which you can pass down to the next generation. Or, you can opt to transfer the ownership of your part of share to another person conveniently.

Reference:

• Wall Street journal (blog) – The Broke and the Beautiful: Rich Dad, Poor Dad Edition
• Forbes – Rich Dad, Poor Dad, Bankrupt Dad?
• iMoney – Bankrupt But Still Worth Millions?