Establishing an LLC can provide a greater distinction between business and personal assets.

If you are self-employed, you likely feel the weight of providing for yourself and your family while caring for your customers or clients.

Risks are taken in both starting and running a business.

These risks can take a financial toll through lawsuits or bankruptcy.

One way to protect yourself as a small business owner is to form a Limited Liability Company (LLC) to separate personal and business assets.

Small business owners benefit from the protections afforded by an LLC.

What is an LLC, and How Does it Offer Asset Protection?

A Limited Liability Company is a type of business structure.

With an LLC, the business structure is taxed in a pass-through structure similar to a sole proprietorship or partnership.

Unlike a sole proprietorship, the LLC allows for the protections afforded to a corporation.

Why is this beneficial?

The reduced personal liability allows small business owners to protect personal assets from risks related to business lawsuits or debts by separating personal and business assets.

Why Should You Choose an LLC for Asset Protection?

Selecting an LLC structure is a strategic action business owners can take to shield their personal bank accounts, their cars, and their homes from business creditors.

This means only business assets can be targeted rather than personal assets.

How Does Liability Protection Work in an LLC?

With an LLC, the protection removes personal liability for debts or legal liabilities of the company from an owner or member of the LLC.

Although not all businesses will hold debt or face legal challenges, an LLC ensures personal property and finances are shielded should such an issue arise.

Can an LLC Protect All Your Assets?

A Limited Liability Company does not provide universal protection.

There are exceptions.

You take personal responsibility for its payments by personally guaranteeing a business loan.

If you mix personal and business funds or use personal assets for business purposes, the LLC will not provide protections.

The LLC provides a structure for more efficiently organizing and managing business assets.

What are the Risks to Your Personal Assets Without an LLC?

Not all businesses carry the same level of risk.

Even so, any business can be sued or incur debt.

Without an LLC, you are gambling on your personal assets.

What is the Role of an LLC as an Independent Entity?

A Limited Liability Company functions as an independent legal entity.

As a result, it is separate and distinct from its owners.

This separation is key to protecting the personal assets of the owners.

Business property can be purchased, and business risks can be taken in the name of the business rather than in the name of the owners.

As a result, these business activities are separate from personal actions.

How Does One Properly Maintain an LLC?

For a Limited Liability Company to protect assets, it must maintain its corporate status.

To accomplish this, personal and business finances must be kept distinct.

Legal formalities must be followed to ensure the activities of the business are conducted under the name of the LLC.

What are Asset Protection Strategies Beyond LLCs?

A Limited Liability Company is one means of shielding assets from creditors and lawsuits.

Additional means of security include trusts or insurance coverage through LLC insurance.

A comprehensive asset protection plan will often include multiple tools in combination.

What are the Limits to LLCs and Personal Liability?

Your Limited Liability Company will protect you from business liability.

It will not protect you from liability for wrongful actions you take as the LLC owner.

Partaking in illegal activities or being personally negligent can translate to you being personally liable.

What is involved in Creating an LLC?

Setting up a Limited Liability Company is often the first step in asset protection for business owners.

Although the steps are fairly simple, careful planning is essential when setting up an LLC.

You must first select a business name.

After doing so, you should complete and file the necessary documents with your state.

In Kansas, the Business Services Division of the Secretary of State governs approval and oversight for Limited Liability Companies.

When creating a Limited Liability Company, you should follow applicable legal requirements.

Setting up this business entity is the first step in separating business and personal assets.

How Does Limited Liability Protection Differ in a Single-Member LLC?

The short answer is no.

A single-member LLC owner and multi-member LLC owners are afforded the same limited liability protections.

Despite this, some courts have reduced these protections for single-member LLCs, especially when the business is not operated as a separate entity.

Yikes!

Keeping the business formalities and structures clear is of critical importance.

LLC owners must take intentional steps to operate their businesses in ways where their personal and corporate activities are distinct.

A basic example is maintaining a business bank account separate from your personal account.

Personal and business funds should not be commingled.

How Does a Limited Liability Company Differ from Other Business Structures?

Although sole proprietorships and partnerships are valid business structures, they do not have the level of liability protection available through an LLC.

As a result, personal assets are exposed to greater risk.

Ultimately, to benefit from the personal protections afforded by a Limited Liability Company, business owners must maintain the formalities of the LLC, understand the limitations of an LLC, and avoid commingling accounts and funds.

Business planning is an essential aspect of estate planning for small business owners.

Schedule a consultation to discuss protecting everyone you love and everything you have, including your business interests.

This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between the Law Offices of Kyle E. Krull, P.A., and the reader.