If you are a business owner, chances are you had a long period of rumination before deciding on your current business entity. Friends, business gurus, and other “experts” may have given you information that made certain business entities seem more attractive than others. While S-Corps, C-Corps, and even Sole Proprietorships have benefits unto themselves, the reality is that an LLC, which is an acronym for “Limited Liability Company” is one of the best business entity structures for offering some degree of asset protection.
You may think that you don’t need to worry about asset protection, particularly if your business is young and you’re not yet seeing sizable revenue. Even if your business isn’t raking in 7 figure earnings, however, there are many circumstances that could still put your personal assets at risk and an LLC could provide significant protection.
Having an LLC, however, without an asset protection strategy is like having a car without a full gas tank—it can only take you so far.
Below are four strategies to maximize the benefit and protection you will get from having your business registered as an LLC.
Maintain your LLC as a Separate Entity
It is not uncommon for new business owners to comingle their personal and business assets. This unfortunately can have disastrous consequences, subjecting your personal assets to a creditor, as you could be perceived as an alias or “alter ego” for your company. If your business is sued, you could be held personally liable for being the “alter ego” of your business. To prevent this type of “alter ego liability” separate your personal assets from your business assets, and keep them separate. Ensure that all business-related documents are consistently executed by the LLC rather than you personally. Even if you have no staff and are a “one stop shop” (i.e. a freelance editor with an editing business or similar) you should still create this distinction.
Create Separate LLCs for Each Parcel of Real Property
Let’s say that your business is now wildly successful, and you have decided to purchase real estate. Maybe you’re so successful now that you bought a primary residence and an investment property, with the latter to be used as a passive income stream. Great! But these new assets must also be protected. Creating a new LLC for each of your properties helps to shield them from personal and business liability, as each property/each LLC would be considered its own stand-alone business
Get Business Credit
When you’re first starting out, your business funding will likely come from personally- guaranteed business loans or investments—not loans opened under your business name. The good news is you can eventually establish business credit which may help prevent your need to personally guarantee loans in the future. To start, make sure your LLC has its own EIN (Employer Identification Number) rather than your personal social security number. Open accounts under your business name and make sure to pay all bills on time.
Obtain LLC Insurance and Personal Umbrella Insurance
If someone sues your business of wrongdoing, chances are you individually will be brought into the lawsuit as well. Good liability insurance can protect both you and your business if you get sued. As the saying goes, “it’s better safe than sorry.” Umbrella insurance is usually quite affordable and well worth the peace of mind.
An LLC can provide better asset protection \when compared with other business entity structures. If you want additional support in creating asset protection strategies beyond a simple LLC, consult with an attorney experienced in asset protection.