By The Wyoming LLC Attorney Team
Feb 11, 2023LLC asset protection is a complex area of law, but understanding it is essential if you plan to form your own company. Forming an LLC is not the most complex entity to establish, but it does have its own set of requirements for establishment and maintenance, including paying the necessary fees, filing accurate paperwork, keeping up with taxes, and filing the annual report on time. Although not mandatory, it is also recommended to create an operating agreement to help organize the company and offer more stability. Abiding by the rules and state laws will allow your company to reap the benefits it provides. The purpose of this article is to explain the basic concepts of LLCs that apply whether you have a single member LLC or an anonymous LLC, their protection from creditors, and how they can be improved with an asset protection strategy in Pennsylvania.
A limited liability company (LLC) is a private limited company that is formed by filing Articles of Organization with the Secretary of State. The partners in the company will usually be called members.
The main difference between an LLC and a corporation is that in a corporation, there are shareholders who own shares of stock in return for capital invested into the company. In an LLC, there are no such owners; instead, all members who have a role in the organization share ownership equally. Another important distinction is that corporations have perpetual existence while LLCs dissolve when they are no longer in operation or have no members left alive or available.
Essentially, forming an LLC is a common option for people to take when they have a small family or friend-run business, usually when very few people are involved in the company. It gives them a sense of control over their assets, separating them from any big payments out of their own pocket. This helps to keep them safe from becoming unable to support themselves in their own lives if their company goes bust or liquidizes.
As a business structure, an LLC can offer corporate protection to members while allowing them to be taxed as a partnership or sole proprietorship. This means you don’t have to pay the double taxation of corporations. They are also relatively easy to set up and maintain, with no minimum capital requirements and inexpensive fees compared to corporations. Unlike a corporation, members don't have to file separate tax returns for both themselves and the company.
While there are numerous advantages to establishing an LLC, it may not suit every individual or situation. In most cases, it can cost more than setting up a sole proprietorship or general partnership, so it may not make sense if you don't need the legal protection provided by an LLC.
However, the filing fees are lower for an LLC than they are for a corporation. The cost of forming a C-corp (which stands for the default variety of LLC) is around $500, while the cost of forming an L-corp (which stands for a limited company) is around $50 to $300 depending on where this is done.
Finally, since you only have one type of owner instead of multiple types like with corporations, you will not have to worry about complicated tax forms or whether certain types of owners qualify for certain deductions or credits. Everything gets filed under the same name, so you will be easily able to find the information you are looking for when you need to check your rights.
One of the most important things to understand about an LLC is that it protects your personal assets from being used to pay for the debts and obligations of your business. However, if a member has contributed cash or property to the LLC, those assets can be seized to cover company debts.
Imagine how hard it would be for a business owner to keep up with their daily lives if they were paying to run the company with their own money. This is one of the reasons that an LLC separates personal savings from the company’s assets
Generally, if the LLC is unable to pay its debts, then creditors can only go after assets that belong to the LLC, not those that personally belong to its members. Therefore, if you're ever sued because of something that happened at work — for example, if someone gets injured on the job — the plaintiff will go after the company for compensation.
An LLC cannot protect you from cases of fraud, however. If you engage in any non-legal practices, then you can expect to pay a fine or be asked to reimburse those you have stolen from without protection from your LLC, which can leave you in a bad state financially.
Ensure that you are aware of any relevant trading laws in your industry before you do anything that could put you or your assets at risk. Remember that an LLC is there to keep you safe above anything else.
Here are a couple of ways you can improve your LLC asset protection in Pennsylvania:
First, make sure you have an operating agreement. This document should be created and signed by all members and managers, clearly stating how decisions regarding the company will be made. The operating agreement should also include any provisions for resolving disputes among members or between a member and manager. This can protect your business from lawsuits if someone does not agree with how the company operates.
Next, consider limiting member liability for business debts with a statutory operating agreement clause or by using one of several other strategies, like charging interest on loans or using personal property as collateral for loans secured against the business assets.
It is a good idea to elect corporate status for your LLC. When an LLC elects corporate status, it becomes a corporation, so the owners of the company are not personally liable for its debts. To do this, you should get in contact with a lawyer who can establish your corporation as an LLC. This will be the first step in the process of setting up your company.
You also have the option of setting up either a single-person incorporation or a multi-owner. Single-person incorporation, sometimes shortened to S-corporation , means that only one person can be responsible for the operations within the LLC. A multi-person, or partnership, corporation is ideal for a company with equal owners who are willing to share the directorial responsibility.
For example, if you own a business with one other person and you are sued by someone claiming that your company did something wrong, then only the assets of the company would be at risk if you were incorporated as a corporation. But if not, then both of you could be held personally liable for any debt incurred by the business.
If you insure your company in Pennsylvania with LLC asset protection provisions, this can also protect your business from lawsuits and accidents involving other people. Insurance is not limited to just covering accidents or liability at work; it also protects your company against theft and fraud.
What if someone takes a fall? Your insurance will fix them up immediately without you getting any money deducted from your assets. Similarly, what if you discover that your shop has been trashed by a robbery? The money you claim back on your insurance can cover the cost of repairs without a penny being withdrawn from the bank.
If you decide not to claim via your insurance, or set up a plan in the first instance, then you risk having trouble with paying back debt. You never know when an accident might occur, so make sure to play it safe.
Trusts are a good way to protect assets from creditors and dissolution proceedings. They are often used by people who want to avoid probate, or by those who want to avoid estate taxes.
Probate is the process of settling an estate after someone dies. The person with power over an estate is called the executor, and he or she chooses who will inherit what when it is time for them to get their share of their inheritance. If you have been through probate before, you know how much time it takes and how expensive it can be.
With trusts, there is no need for this process at all because everything gets taken care of beforehand through documentation that outlines exactly how your money should be distributed upon your death or during the company’s dissolution.
Estate taxes are paid on certain property transfers made after death. In Pennsylvania, they are due within nine months after someone dies unless they have specifically stated otherwise.
When people talk about an LLC and its members, they are talking about two different things. The members of the LLC are human beings; they are the ones who own and run the business. Meanwhile, as a separate legal entity, an LLC itself is not a person—it cannot be sued or go to jail if it breaks any laws.
As mentioned above, one benefit of this separation between owners and their businesses is that members do not have personal liability for anything that goes wrong with their companies. The only time an owner can be held liable is when they have actively engaged in illegal activity under their corporation.
If someone sues an individual member for some reason related to their LLC, then that individual owner would face any potential damages awarded by the court system, though not all other owners involved with that company or have money and assets taken from their LLC.
If you are looking for an effective way to protect your assets from creditors and other lawsuits, consider forming a limited liability company. An LLC can be formed in Pennsylvania or any other state, although there are many advantages to forming one locally.
We've helped hundreds of clients form their LLCs in all 50 states. Just let us know which state you want your LLC located in, and we will make sure everything gets done correctly, to ensure your LLC can operate efficiently and legally.
Our team understands just how precious your time is. We can help you form an LLC quickly, sometimes even in just a day. Forming an LLC with us is fast, which means that you can spend your time focusing on your business operations rather than understanding complex legal documents.
We have been creating and managing thousands of business entities across the United States for years, not just in Pennsylvania. We offer affordable and easy formation services that ensure your company is set up correctly from day one. We provide filing services to our customers with honesty, integrity, and transparency, and aim to keep you in the know about what an LLC can offer you.
If you're looking to create an LLC online and require support, our experienced paralegals will assist you throughout the process of LLC formation. Begin safeguarding your assets promptly. You can either fill out the contact form or dial +1 (307) 683-0983. to get in touch with us.