Engaging in business ventures can be a good idea, but of course there are inherent risks that go along with the territory. When you decide to embark on a business enterprise you have to consider the type of entity that you’re going to use. Asset protection is a concern for most people, and making a clear distinction between your own personal assets and those of the business is something to take seriously. A lot of people do this by creating a limited liability company or LLC.
You may be aware of the fact that principal shareholders and officers of corporations can be the targets of litigation as a result of actions that their companies undertake. This is an inherent peril that exists when you incorporate. On the other hand, limited liability companies work differently. If someone was to sue the LLC, they cannot attach the personal assets of the people who own the limited liability company (they’re called “members).
So limited liability companies do provide the members with a reasonable modicum of asset protection. It should also be noted that one can start a LLC on his or her own; there can be multiple members but single-member limited liability companies are allowed as well.
There are limits to the asset protection provided by an LLC. For example, if there was a judgment against you cash distributions that you receive from the LLC could be subject to charging liens. You also have to be able to prove that the limited liability company is a truly independent entity. Creditors often make the case that an LLC is simply the “alter ego” of the member or members, and if they are successful in “piercing the veil” your personal assets can indeed be fair game at the discretion of the court.
Limited liability companies can be a viable option for some people. To learn more, take a moment to arrange for a consultation with an experienced financial planning lawyer.