For some businesses, the most valuable asset they have is their website and domain name. Even in cases where the website and domain names would not have any market value to anyone else, a judgment creditor may still seek to levy on this unique personal property in order to pressure the debtor to pay all or part of a judgment.
More and more businesses today are relying on internet marketing and sales for most or even all of their revenue. I do not see this trend changing.
An example I recently experienced was a client who ran a sales business primarily though the internet. The business had no inventory, and all sales were paid in advance so the business had no receivables.
The business’s most valuable asset was the domain name of its website. If a creditor levied on the domain name, the creditor could close the website, effectively shutting down the business. Even though the website domain had little market value in the creditor’s hands, it could still be a primary target of collection efforts in order to pressure the debtor to pay the judgment.
To protect the domain name from the judgment creditor, I suggested that this business sell the website and domain name to a related business entity. Then, the debtor entity would lease back the website and domain from the third party entity.
In order to help deflect allegations of fraudulent conveyance, I suggested that there be a purchase of the website and domain name for fair market value. An appraisal of the domain name would be helpful to establish an arms length sales price.
Because the lease interest in the domain would also be an asset subject to levy, the lease should contain provisions that make it unattractive for creditors.
For internet businesses like these, the website and domain names are similar to the importance of an office building owned by a traditional business. These types of assets should not be titled in the name of operating companies that could incur future liabilities.