Protecting Your Assets with an LLC
As a business owner, protecting your assets is one of your top priorities. When you own a business, there is a chance that you will incur some debts in order to start up or expand your business. If you obtain financing for anything business-related, it will be very important to make sure that you don’t put any of these debts in your name.
One of the best ways to protect your assets is to form a Limited Liability Company. This is a type of entity where you receive protection from any business-related liabilities such as debts. With a limited liability company, you will be able to avoid personal liability for any debts that you are unable to pay.
There are many steps that you will need to take in order to form a limited liability company. When you start up your business and are looking to form an LLC, it will be important to consult with an attorney who specializes in asset protection and business entity setups. With their guidance and expertise, they will help you find the best ways to organize your assets so that they are protected in case you are found liable for any business debts.
UNDERSTANDING PROTECTION FROM A LLC
Whenever you establish a limited liability company, you are creating a new business entity that is separate from you and the other owners. As a result, you are legally protected from any liabilities that the company incurs during its existence. The separation of you from the LLC is known as limited liability protection. Once an LLC is established, if it is unable to pay its debts, the creditor will pursue the LLC’s assets in order to satisfy the debts. Therefore, you will not be personally liable for anything. So assets such as homes, cars or bank accounts are safe from any business creditor. The only money that is at risk is the amount that the owner invested in the business.
While a limited liability company provides protection for the owner in most cases, there are some exceptions to this. The main type of debt that an LLC owner can be personally liable for are any debts that they have guaranteed themselves. An LLC owner can also be liable for back payroll taxes. Another thing that an LLC owner can be liable for is lawsuit judgments for malpractice or negligence.
Even though there are some limitations, a limited liability company is still highly valuable for any business owner who wants to ensure that their assets are protected. Whenever you decide to form an LLC, it will be a good idea to follow some important tips so that you can put yourself in a position to ensure your financial security and livelihood.
GET THE RIGHT INSURANCE POLICY
One of the things that a business owner will need to do when forming an LLC is to get an insurance policy. They will want to get a liability policy that will protect them from liability for any wrongdoing. A limited liability company will not protect you from any judgments that pertain to defrauding a customer, damaging property or committing negligence when maintaining a property. Since you won’t be protected from personal liability, it will be important to get an insurance policy that makes up for this deficiency. With a good liability insurance policy, you will be able to get coverage for both yourself and your business.
KEEP THE LLC INDEPENDENT
Another key to forming a Limited Liability Company is to make sure that the entity remains independent from the owner. With corporations, a shareholder who mixes both personal and corporate assets will sometimes be ruled liable for any debts. This is because the corporation is regarded as the alter ego of the shareholder. Like corporations, LLC’s are also given this type of ruling. As a result, owners of an LLC who have their personal assets as part of the entity will often be liable for paying business debts themselves instead of the entity.
Since an LLC can be subject to an alter ego liability if personal assets are involved in the entity, a business owner will need to make sure that all LLC records are completely separate from themselves. An owner will also need to keep their personal and business finances separate as well. When forming an LLC, the owner should have a separate bank account and credit cards for LLC. All contracts, invoices, and purchase orders should all have the LLC name instead of the owner’s personal name as well. With this approach, creditors will then be certain that they are always dealing with an entity that is completely independent.
When establishing a credit history for the LLC, you will want to get some small credit lines in the LLC’s name. Once these are paid off in a timely manner, the LLC will have a good credit rating and be able to get higher loan amounts. As well as getting higher loan amounts, you can also use the LLC as the entity taking on the debt instead of yourself. While a new LLC will often require the owner to make personal guarantees for loans, they can gradually build a credit history in order to avoid risking their personal assets in the future.
LIMIT FUNDS AND ASSETS IN LLC
Anytime an LLC is sued, all of the assets can be subject to seizure by a creditor. While your personal assets are safe from being seized by creditors, the assets of the LLC can be taken which can cause some financial hardship. As a result, it is important that you put a very minimal amount of money and property in the LLC. With this approach, you will not have to worry about suffering any significant financial losses in case of a lawsuit or loan default. The best way to manage the assets of the LLC is to pay as much to the owners as possible.
While keeping money and other assets in the LLC at a minimum, there are exceptions to this rule. Owners who already owe money to a creditor and attempt to transfer its money out of the LLC will often be liable for a fraudulent transfer. Along with this provision, if the LLC does not have sufficient funds to pay its expenses, the owner can be personally liable for any debts or expenses through the alter ego theory.
USE STRATEGIES TO PROTECT ASSETS FROM PERSONAL CREDITORS
When forming an LLC, the owner can still have their personal assets targeted to satisfy LLC obligations. Those who are sued for any personal wrongdoing or who personally guarantee loans. Depending on where you live, there may be some laws that allow you to protect your personal assets from lawsuits and loan guarantees.
Some states allow individuals to put assets into trusts in order to get sufficient protection against creditors. However, this must be done years before any of the debts or judgments are incurred. With trusts, an owner’s retirement accounts and primary residence might be protected from creditors. Whenever you are looking to get protection for your personal assets, it is important to consult with an estate planning or bankruptcy attorney in order to best organize your assets.
USE TRUSTS TO PROTECT ASSETS
As the owner of an LLC, you will want to place assets such as your home, cash, stocks, and valuable property into an irrevocable trust. This kind of trust will protect you from most LLC debts and any other legal financial obligation that you may have. With an irrevocable trust, all of your assets are owned by the trust and it is also administered by an independent trustee. It is also administered to benefit a person’s beneficiaries as well.
In some states, these trusts can have clauses that can restrict the transfer of certain assets before any distributions are made to the beneficiaries. While these trusts often involve giving up control of your assets, it is often protected from creditors and will provide your beneficiaries with some financial stability in the future.
Another type of trust that you can use with an LLC is a Domestic Asset Protection Trust. These trusts allow an individual to name themselves the beneficiary and retain control of their assets. They are also able to receive protection from creditors as well. The laws of each state vary so it will be important to consult with an estate planning attorney to get all of the information you need. Since courts may look back ten years to examine any transfers, it is important to organize this trust ahead of time.
ELECT CORPORATE STATUS
As well as forming an LLC, an owner will also want to consider electing corporate status for it. The IRS permits LLCs to choose how it wants to be taxed. They can either be taxed as a corporation or as a sole proprietorship. LLC owners can elect to operate their businesses as either an S corporation or a C corporation. As a C corporation, the LLC must meet additional qualifications. However, filing as a corporation will require that the owner goes through a more complicated process of filing documents, reporting activities, and meeting certain qualifications. If an owner elects to be a C corporation, they will be liable for double taxation as well.
Whenever your LLC is given corporate status, there are some benefits that you will get. First, you will be able to shield personal assets from the debt and liabilities that the LLC incurs. You will also be able to avoid personal responsibility for any unpaid taxes of the LLC as well. The one thing that you will need to do is make sure that the LLC remains a completely separate business entity in order to get all of these protections from liability.
PUT REVENUES OF LLC IN CERTAIN ASSETS
If your LLC is making consistent profits, you will want to consider putting your money into assets such as your primary residence. It may also be a good idea to put your funds into certain investment and bank accounts that are protected from creditors. Owners of an LLC can also place a homestead exemption on their homes up to a certain amount. One state that is known for protecting one’s home is Florida. In this state, your home is protected from all debts and even if the home was purchased with the primary purpose of avoiding liability from creditors. You can also put your funds in tax-qualified retirement plans, IRA’s, 529 college savings plans, and life insurance policies as well.
CONSULT WITH PROFESSIONALS TO LEARN MORE
Building a successful business and accumulating wealth is very rewarding and therefore you will want to make sure that you protect it at all times. When looking to protect your wealth, it is important to understand the value of certain legal structures. Forming an LLC is one of the best ways to protect your assets from creditors. Anytime you put together an LLC, it will be important to consult with an attorney who is experienced in forming LLCs and knows all about how they can protect your assets.
With the help of an experienced attorney, you will be in a position to get the guidance you need in order to determine how to structure your LLC. You will also be given advice on where to put your assets so that they are protected from any liabilities issued by creditors. Using asset protection strategies such as forming an LLC will enable you to ensure that you don’t lose your fortune or jeopardize your financial security.
If you plan on starting a business as well as making sure that your assets are protected, it is important that you form the LLC well before you start. With the formation of the LLC, you will now be able to have a separate legal entity for all of your business activities. With an LLC, you will have what you need to ensure that you and your assets are always protected.