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Delaware LLC Asset Protection

How to Start an LLC

When forming a business in the United States you have the choice between a few different structures. Limited liability companies (LLCs) offer limited liability protection to their owners. The owners will not be considered liable for the company’s debts, or should the company be sued. They are hybrid entities that offer benefits and characteristics of a corporation as well as of a partnership or sole proprietorship.

Forming an LLC is a fundamental step for many entrepreneurs seeking to establish a business with limited liability protection. This legal structure not only shields personal assets from business liabilities but also offers various advantages such as flexibility in taxation and management. However, before diving into the process, it's essential to understand the costs involved and the requirements set forth by the state.

In addition to filing fees and annual reports, considerations such as drafting an operating agreement and obtaining an Employer Identification Number (EIN) are pivotal. Moreover, depending on individual circumstances, options like a single member LLC or an anonymous LLC might be worth exploring for added privacy and asset protection. In this article, we'll explore strategies to maximize the LLC formation.

How an LLC Protects Your Assets

When you form an LLC, you are creating a new business entity. It is a new entity that is separate from the owners and can even enter into contracts or go into debt on its own. Because of this, it offers the owners limited liability protection.

If an LLC cannot pay its debts, then the creditors are unable to go after the owner’s assets or bank accounts. Rather, LLC’s creditors can only go after the bank account and other assets belonging to the LLC. This means that you will only be at risk for what you have put into the company.

It is good to note that an LLC cannot protect you against being sued for your own negligence.

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How to Improve Your LLC’s Asset Protection

Most business owners form an LLC to protect their assets. They don’t want to be held liable personally for something that happens on the clock. If you want to enhance your LLC’s asset protection, consider these 5 tips.

  • Purchase Insurance: If you have insurance for your LLC then you can limit your personal liability should a negligence case occur. This will give you liability protection from your LLC, and insurance for any type of personal negligence.
  • Elect Corporate Status: Because an LLC can elect which type of corporate status it wishes to hold, choosing corporate status can offer more protection.
  • Independent Entity: Keep assets completely separate when it comes to personal and corporate assets. This way there is no excuse to take your personal assets that are separate from your LLC. For example, your LLC should have its own bank account and credit cards. Separate contracts signed as the LLC can help to keep this in check as well.
  • Establish Credit: If you sign on to credit lines and put yourself as being responsible for corporate debt, it can leave you being liable. Rather than sign on to corporate debts, establish credit for the business itself. This way you won’t be asked to pledge your assets. Simply pay the LLC’s bills on time and show a track record of real revenue and profit.
  • Use Trusts: Trusts can be set up for greater limited liability asset protection. If you put your assets into a trust then it minimizes the risk of keeping money in the company that may be vulnerable if the business is sued.

Form an LLC

When forming an LLC there are a few things that are required. First off, it is important to be aware of the state laws in Delaware, and the fees that are required in forming an LLC. Not only is there an initial filing fee of $110, but there is an annual fee of $300. Working with a lawyer can help to ensure that you are in compliance with all state laws.

To form an LLC you will need to choose a name that is unique in the state of Delaware. Then you should hire a registered agent who is available to accept service of process. They will need to have a physical address in the state of Delaware. This is to ensure that they can accept a lawsuit in a prompt manner if your LLC is sued.

It is also important to file the articles of organization that establishes the LLC (this is submitted along with the $110 filing fee). An operating agreement should be drafted, which will outline the ownership of your LLC and operating procedures. It is important because the operating agreement reduces the risk should a future conflict arise.

One of the last steps in forming an LLC is to obtain an EIN, This is similar to a social security number, but for your business. It will help you to open a business bank account, and hire employees. Hiring a lawyer can help with this process and ensure every step of the way is done in accordance with the law.