What is an LLC?
A limited liability company, or LLC, is a comparatively new business model that shields its owners from personal responsibility for liabilities or debts. The structure combines most of the benefits of a corporation without the requirements for many corporate formalities, and thereby provides its owners with impressive operational flexibility. It is wise to to separate your business’s assets from your personal ones with an LLC.
Pros and Cons of an LLC
LLCs are simple to form. In Utah, you can easily form an LLC using a government website. The management and ownership options are flexible, as are the profit choices. LLCs also provide “pass-through taxation,” a tax benefit that prevents profits from being taxed twice and locks in the tax rate at personal income levels.
However, an LLC may not always be the best choice. It is wise to consult with both your attorney and tax professional before making the decision about which type of business entity to use.
Protecting the Business vs. Protecting You
Lawsuits are a common part of American life. In the United States alone, more than 15 million civil cases are filed every year. These include legal action involving both businesses and individuals. While the hope is to avoid the necessity of going to court in a dispute, that is not always an option. You never know when a lawsuit may arise, either personal or related to your business.
An LLC is a separate legal entity from its owner. Because of this, assets owned by the LLC are not the property of the LLC’s owner, and vice versa. This keeps personal and business assets separate and distinct.
This is important, because In the event that your business is sued, perhaps by a disgruntled employee, dissatisfied customer, or someone who has suffered a personal injury related to the business, an LLC can keep your personal assets (house, vehicles, real estate, stocks, and other investments) out of reach from those parties. Creditors of the business cannot seek redress from you personally under ordinary circumstances if the business is an LLC.
Forming an LLC is a popular strategy to secure business assets because a member’s financial exposure is usually limited only to their equity investment in the LLC, meaning that personal assets are not at risk. There are a few exceptions. For example, if an LLC member guarantees a business’s loans or obligations personally, that member can be held liable for the default. LLCs also do not protect members who personally commit negligent or wrongful acts against others.
An attorney can help you form an LLC and advise you about things like insurance and legal protection.
Forming an LLC to Protect Your Personal Assets
Setting up an LLC is a relatively straightforward business venture, but certain government regulations and formalities must be followed in order for the maintain separation between business and personal assets. Our experienced legal team understands the the important considerations in forming an LLC, and can help you do it right.