LLCs are a type of business entity in the United States, where owners are given limited liability protection. This is because an LLC is a separate entity. Although this is similar to a corporation, an LLC also incorporates aspects of a partnership or sole proprietorship.
Forming a limited liability company (LLC) offers liability protection from the debts and liabilities of your business. This is important because it will keep your home safe should your business get sued. You will only be at risk for what you put into the company, rather than what is in your bank accounts.
How an LLC Protects Your Assets
When you form an LLC, it is a new business. It is formed completely separate from the owners and will offer limited liability protection. Because of this, owners are not liable for the debts of the company. Rather, if the LLC is sued, the LLC’s creditors can only go after the LLC’s bank account or other assets.
It is good to note, that when it comes to personal liability, such as negligence or malpractice, an LLC will not protect you. This is why it is essential that you hold liability insurance to cover yourself and protect your personal assets.
5 Tips to Improve Your New Mexico LLC Asset Protection
Wondering how to improve your LLCs asset protection so you aren’t liable? Consider these 4 tips to enhance your LLCs asset protection.
Having liability insurance is essential if you wish to avoid being financially ruined if you are sued for negligence. Should you make a personal mistake, having insurance should cover everything that an LLC does not.
Elect Corporate status
One benefit of an LLC is that it can elect the tax status of its choosing. These options include a corporation, a partnership, or sole proprietorship.
Corporations are different from LLCs in that if shareholders mix personal assets with corporate assets, they can be held liable for anything that may occur. This is the same as an LLC. By keeping finances separate between yourself and an LLC, it will keep the assets separate as well. For example, an LLC should have its own bank account, credit cards, sign its own contracts and invoices.
When an LLC is sued, any money within the business can be taken by the creditor. One of the purposes of an LLC is to prevent this from happening to your personal assets. In order to do this, you should keep as little money as possible in your business. You can pay out profit to the owners, or another option is to use a trust.
One thing you need to be aware of is that if you owe a creditor and transfer money out of the company, the transaction could be seen as fraud. This is why you must keep enough money in the company in order to pay the expenses.
Establish Business Credit
It is important that you do not personally guarantee any of the debts for your LLC. This is one way that you can become liable for company debts. For example, if you sign on a loan for your LLC, you may be liable to pay this back should the LLC dissolve or go into default on the loan. By building business credit, you can obtain loans for your business on its own. This can be done by paying bills on time as well as showing revenue and profit.
Form an LLC
When forming an LLC there is a process you must go through. Working with a lawyer can help ensure this process runs smoothly. Specifically, in the state of New Mexico, there are various fees and requirements when forming an LLC:
- Choose a unique name
- Choose a registered agent in New Mexico: They must have a physical address in New Mexico and be able to accept due process if you are sued.
- File the articles of the organization: Establish the existence of your LLC by filing these papers and paying a filing fee of $50 in New Mexico.
- Draft operating agreement: Outlines the rules and ownership of the LLC, as well as operating procedures.
- Obtain an EIN: This is similar to a social security number for your business. This allows you to open a bank account and obtain loans for your LLC.
Should I Hire a Business Lawyer?
Hiring a business lawyer is a good idea if you wish the process of forming an LLC to go smoothly. It will ensure that you stay in compliance. Working with a business lawyer who is well versed in the laws of New Mexico is your best choice in forming an LLC.