In the United States, limited liability companies are a type of business entity that allows business owners to protect their personal assets. Limited liability companies (LLCs) provide liability protection from the debts and liabilities of a business.
If an LLC is sued, the owners will be given protection. Creditors cannot legally sue LLC owners for their homes or other property. Whatever is put into the company is at risk, but otherwise personal assets are off-limits. This is similar to the limited liability that is given to corporations, but LLCs benefit from pass-through taxation such as a partnership or sole proprietorship.
How an LLC Protects Your Assets
When forming an LLC you are creating a new business. This business is a completely new entity and is separate from that of its owners. An LLC can enter into contracts, and obtain debts. If an LLC does not pay back its debts, it can be sued. Despite this, because it is formed separately from its owners, it provides limited liability protection. Creditors can only go after the LLC’s bank account and other assets, not that of the owners.
It is good to note that an LLC will not protect against personal liability. Personal liability is defined by negligence. Should you commit wrongdoing or malpractice, it is essential that you have liability insurance to cover your mistake and shield your own assets.
Improving LLC Asset Protection
Purchase Insurance
If you purchase insurance you can protect your liability if you are accidentally negligent. This is because your LLC may not protect you from everything, so your insurance can be a backup.
Elect Corporate Status
When forming an LLC you can choose how you wish to be taxed. You can choose to be taxed as a corporation, or as a partnership/sole proprietorship.
Independent Entity
When it comes to corporate law, shareholders that mix personal assets with corporate assets can be held liable for any type of fraud. The same situation can occur with an LLC. Especially if you have multiple members in your LLC that have access to funds, keeping all finances within the LLC separate is important.
The LLC should have its own account and credit cards and enter into contracts, as well as purchase orders without member names involved.
Use Trusts
When it comes to an LLC being sued, having a trust setup can help to protect your personal assets. This way, a creditor cannot tie the LLC to the trust, and the assets will be protected. In order to minimize your risk, keeping as little money as possible within the company is essential.
By paying out funds to a trust, they become untouchable. The only time this is not true, is when you know that you owe a creditor. If you transfer money out of the company, then this can be seen as fraud. Additionally, if you do not leave enough money in the company to pay for its expenses, the court might hold you personally liable.
Establish Credit
Similar to how you can build your own personal credit, an LLC can also build business credit. This can be done by paying business bills on time and keeping track of both revenue and profit. By allowing the LLC to have its own credit built, it can obtain its own line of credit. This will separate you from the LLC when it comes to debts, and secure your personal assets.
Start Protecting Your Assets with a Florida LLC
Forming an LLC in the state of Florida can be a complicated process. Working with a lawyer is often a better option if you wish to keep your personal assets secure. Not only will a lawyer be able to ensure that you are in compliance with state laws, but they will also ensure that your liability is protected.
