The well-known acronym LLC stands for limited liability company. As the name implies, an LLC limits the liability of business owners by protecting their personal assets. The business itself is limited from certain types of legal liability as well. Many individuals have a basic knowledge of these principals, but still the question is often asked, how does an LLC protect my assets?
Types of Liability Protection LLCs Provide
Basically, forming an LLC allows business owners to avoid personal liability for any business debts. When an LLC is formed, the company is liable for the debts incurred by the business, not the owners. There are several areas of liability that need to be considered:
- Personal liability for your LLC’s debts
- Personal liability for actions by LLC co-owners or employees related to the business
- Personal liability for your own actions related to the business, and the LLC’s liability for other members’ personal debts
The full extent of liability or asset protection an LLC can provide depends on the laws of your state. So, before you decide on the proper business structure for your business, you must determine the extent of protection an LLC will provide in your state.
As long as you do not personally guarantee (promise to pay) any of your business debts, you will typically not be held personally liable for the LLC’s debts. This is true regardless of the state in which your LLC is established. This means, your business creditors can only go after your LLC’s bank accounts and other business-owned property. Creditors cannot touch your personal property. This is one of the major benefits of an LLC.
When it comes to wrongdoing committed by other owners or employees of an LLC, you are protected from personal liability for those actions, even if they occurred during the course of business. In other words, if the LLC is found liable for the negligence or wrongdoing of a co-owner or employee, only the LLC’s money or property can be subject to satisfy any judgment against the LLC. Of course, the owner or employee who committed the wrongful acts may be held personally liable, but not any other co-owner who was not involved.
It logically follows that, if you are negligent or engage in any wrongful conduct related to your business, you will remain personally liable for your own actions, regardless of the fact that your business is an LLC. This is an extremely important exception to the protections provided by an LLC. Consider the following examples of personal liability incurred by LLC owners:
- Personally and directly injure someone during the course of business due to your negligence
- Fail to deposit taxes withheld from employees’ wages
- Intentionally do something fraudulent, illegal, or reckless during the course of business that causes harm to the company or to someone else
Do not make the mistake of assuming that forming an LLC will protect you against personal liability for your own negligence or other wrongdoing, even when it is related to your business. If both you and your LLC are found liable for an act you commit, then both the LLC’s assets and your personal assets could be taken by creditors to satisfy a judgment. For this reason, it is important for LLC owners to have liability insurance.
Attend a Free Seminar!
In this relatively brief blog post, we have looked at one commonly utilized asset protection device, but there are a number of others. The ideal source of action will depend upon the circumstances, and this is why it is very important to consult with one of our Mount Clemens asset protection lawyers when you are establishing a business structure and you are concerned about asset protection. Our doors are always open if you would like to schedule a consultation.
This being stated, there is another way that you can obtain some very useful information about many different estate planning and elder law topics. Our Mount Clemens asset protection lawyers are holding a number of seminars over the coming weeks, and you can really build on your knowledge if you attend one of these sessions.
They are absolutely free, but we do ask that you register in advance so that we can reserve your seat, because space is limited. To check out the schedule and obtain registration information, click this link and follow the simple instructions: Mount Clemens Estate Planning Seminars.