- As a business owner, you can be sued for a number of reasons claiming that you are at fault. When you form a limited liability company (LLC) for each business venture, a plaintiff has access only to the assets that you place in the LLC of that business. If your personal property and finances are not mingled together, then you will not be held personally liable for lawsuits that your company loses. It's imperative that you place only the assets that the company needs in the LLC and that you formally file the paperwork to transfer property into it.
How to Create an LLC
- To create your LLC, choose a name and check on your secretary of state's website to make sure that it has not been taken. Your business name must include the term "Limited Liability Company" or "LLC" in it. File your articles of organization and your operating agreement with the secretary of state. Your operating agreement defines the expectations of the owners, called members, and the manager. You can hire an attorney to draw up the paperwork or use an online service. You also will choose a registered agent who will receive all notices on behalf of your LLC. A fee, which varies from state to state, will be due upon filing your documents.
- If you own more than one enterprise, you will gain the most protection with separate LLCs. For example, if your business consists of several real estate properties, you can form a different LLC for each one. This way, if a tenant is hurt in your building and your insurance policy limit is not sufficient to satisfy the judgment against you, your other properties will be safe and only the real estate where the injury occurred can be attached. Your liability will be limited to all assets within that LLC only.
Don't Give Personal Guarantees
- When you are running your business as an LLC or if you choose to dissolve the entity later, your creditors cannot collect a debt from you personally. However, there are some business dealings, such as lease agreements and other contracts, that may require a "personal guarantee" from you. Once you sign this type of document, your landlord or creditor may legally pursue you and your personal assets to satisfy a debt. If at all possible, do not give personal guarantees in relationship to your business transactions. Instead, have the LLC listed as the borrower on loans and other agreements.