Texas Joint Stock Company Scam

Quatloos! > Investment Fraud > Financial Planning > Asset Protection Scams > Texas Joint Stock Co

Commentary by Jay D. Adkisson, a member in good standing of the State Bar of Texas and the author of “Asset Protection: Concepts and Strategies” published by McGraw-Hill & Co, 2004. Mr. Adkisson has twice been an expert witness to the U.S. Senate Finance Committee regarding tax scams, and has lectured to IRS enforcement agents about Pure Trusts. Mr. Adkisson is considered by many estate planning professionals to be the leading asset protection planner in the United States, and he is of course also the original founder of Quatloos.com

The Texas Joint Stock Company scam is an form of asset protection scam that these days seems to be run mostly from the Dallas area by a bunch of con artists who got into trouble a few years ago selling bogus Pure Trusts. Having been whacked by the IRS, yet desiring something to sell to suckers, these con artists have come up with yet another mythical asset protection device in the form of the Texas Joint Stock Company.

So what is a Texas Joint Stock Company? It is an unincorporated entity, much like a general partnership. Section 31.10 of the Texas Business and Commerce Code requires that any person conducting business as a Texas Joint Stock Company must file in each county in which the entity is doing business a statement setting forth that a fictitious business name will be used (not to exceed 10 years). The Texas Joint Stock Company can be sued in its own name, and in many ways is treated like a general partnership – including for many debtor-creditor issues.

What the Texas Joint Stock Company amounts to is an entity that is treated like a general partnership, which is very unfortunate considering that general partnerships provide very little in the way of asset protection. Now, if the Texas Joint Stock Company was similar to a Limited Partnership, it might be more interesting – but it isn’t.

The Texas statutes make clear that stock in a Texas Joint Stock Company may be executed upon and sold by creditors of a shareholder. This is crystal clear in Section 34.044 of the Texas Civil Practice & Remedies Code

§ 34.044. STOCK SHARES SUBJECT TO SALE. Shares of stock in a corporation or joint-stock company that are owned by a defendant in execution may be sold on execution.

While the promoters who try to sell Texas Joint Stock Companies often (falsely) claim that these entities are “better than limited partnerships and LLCs” this is shown to be patently false by the above paragraph. With a limited partnership or LLC, a creditor is stuck with a “charging order” against the membership interest, but with a Texas Joint Stock Company a creditor of a shareholder can seize and sell the debtor’s shares.

Even a general partnership has charging order protection, but as shown the Texas Joint Stock Company doesn’t. If you said that Texas Joint Stock Companies have all the most debtor-unfriendly features of both general partnerships and corporations, you wouldn’t be far off. No asset protection planner while sober would consider using such an entity if potential future liability from within the entity or to a shareholder was possible. But probably even a drunk planner could presumably read the plain text of Article 6137 from Vernon’s Texas Civil Statutes and know exactly why Texas Joint Stock Companies provide no meaningful asset protection:

In a suit against such company or association, in addition to service on the president, secretary, treasurer or general agent of such companies or association, service of citation may also be had on any and all of the stockholders or members of such companies or associations; and, in the event judgment shall be against such unincorporated company or association, it shall be equally binding upon the individual property of the stockholders or members so served, and executions may issue against the property of the individual stockholders or members, as well as against the joint property; but executions shall not issue against the individual property of the stockholders or members until execution against the joint property has been returned without satisfaction.

In other words, so long as a creditor is smart enough to sue the individual members of a Texas Joint Stock Company in addition to the organization itself, no asset protection is afforded. The creditor might be slowed down a bit having to chew on “joint” property first, but eventually the shareholder’s assets will be attacked too.

The concept of using Texas Joint Stock Companies as an asset protection device was not thought up by licensed attorneys after deep research into the law. Rather, just a bunch of former Pure Trust salesmen stumbled upon the term and figured that they had found something that could be marketed to suckers. Bundled for sale with Nevada corporations (which have no significant asset protection advantages over the corporations of other states, but are also shamelessly marketed), and the Texas Joint Stock Company promoters offer packages that promise absolute asset protection, but in the reality of the courtroom will offer all the resistance of wet toilet paper.

If asset protection is a concern, just say “No” to Texas Joint Stock Companies, and run like hell from whoever it is that is trying to sell you one.

What About the Contract Clause of the U.S. Constitution?

The promoters of Texas Joint Stock Companies claim that they are somehow immune from state law, including state fraudulent transfer laws, because of the Contract Clause of the U.S. Constitution. Without citing any cases directly on point, the promoters (falsely) attempt to create the impression that the courts recognize this theory.

This claim is some major bologna. The Contract Clause has never been interpreted in such a fashion, any more than two people could agree to commit a murder or pollute a creek and think they can avoid prosecution just because they made a contract. Indeed, this exact same argument has been made by Pure Trust scammers and consistently rejected by the courts – with the Pure Trust scammers pretty consistently going to jail for tax evasion.

Thus, the claims that Texas Joint Stock Companies are also not subject to state fraudulent transfer laws are equally wrong and bogus. No court has ever held such a thing, and at any rate Texas Joint Stock companies are a creation of the Texas statutes (and not common law) and the Texas legislature did not carve out a special exception to the fraudulent transfer laws for Texas Joint Stock Companies

What About the “1st and 14th Amendment Medical Associations”?

The same scammers that bring you the Texas Joint Stock Company offer another scam, the “1st and 14th Amendment Medical Association”, by which they claim that physicians can join and thus be immune to losing their licenses, plaintiff’s claims, and some other stuff.

Such Associations are pure fantasy, and do not exist in legal reality. Medical associations can be created only by statute, and no state’s legislature has created a “1st and 14th Amendment Medical Association”. No such entity is created by the U.S. Constitution, either, and to assert the existence of such an entity in court would result first in laughter, and second in a large frivolous sanction.

So, just say “No” to the Texas Joint Stock Company and the 1st and 14th Amendment Medical Associations. If you have any doubts about any of the above, just contact any licensed Texas attorney and ask them.

By the way, for a couple of good cases describing the Pure Trust scam, see http://www.assetprotectioncorp.com/dahlstm1.html and http://www.assetprotectioncorp.com/dahlstm2.html

Asset Protection: Concepts and Strategies for Protecting Your Wealth is unlike any other work on the topic of protecting asset from creditors. For the first time, a book examines the fundamental and theoretical underpinnings of asset protection planning, and takes a contrarian view of popular and heavily-marketed gimmicks such as offshore trusts that have landed their owners in jail when challenged. This work uniquely takes a holistic approach to asset protection planning that considers the specific circumstances of each individual client rather than forcing all clients into one of three or four “canned” solutions.