The idea of not mixing your business life with your personal life extends beyond the idea of separating business and relationships. It applies to your business assets and personal finances as well.
As a business owner, it’s important to protect your personal assets from a lawsuit. If you’re new to owning an LLC, you may be wondering, “Does an LLC protect your personal assets”?
Well, continue reading to learn the answer:
LLC Liability Protection
When you create an LLC, you open a business entity that’s legally separate from you. This divide is called limited liability protection. For instance, if the LLC can’t pay its debts, then creditors are able to go after the LLC’s bank account and other assets.
However your personal assets, like bank account, home, and car are protected. An LLC owner is only at risk of losing the money they invest into their business…but there are limitations.
Business owners are still responsible for debts they have personally incurred. They may also be liable for unpaid payroll taxes.
Below our other techniques on how to protect your personal assets:
Get LLC Insurance
If a person files a lawsuit against you, your LLC won’t always protect you from personal liability. A successful lawsuit could take a big toll on you financially. Therefore, it’s best to have a good liability insurance that will cover you and your business if you get sued.
Keep Your LLC as an Independent Entity
In the corporate world, shareholders who combine their individual assets with corporate assets can sometimes be held responsible as the alter ego of the corporation.
To avoid alter ego liability, it’s essential to keep LLC documentation and finances entirely separate from your personal finances. Your LLC should have its own bank account and credit cards.
Furthermore, invoices, orders, contracts, and other important information should also be under the LLC’s name and signed per the LLC. Doing so lets everyone that you’re doing business with know that they are partnering with an independent entity and not you as a person.
Dividing your business and personal finances is the best asset protection.
Only Keep a Certain Amount of Money in Your LLC
If your business is sued, the money that’s in the LLC can be used to pay off debts to the creditor. To minimize the potential of lots of money being taken from your business, keep as little funds as possible within the company and pay the other owners.
Just be aware that if you already owe a creditor and you remove money out of the company, that transaction is considered a fraudulent transfer. Also, if you don’t keep enough funds in the company to satisfy its expenses, a court could hold you personally responsible for an alter ego theory for under capitalizing your business to defraud creditors.
Does an LLC Protect Your Personal Assets?
Does an LLC protect your personal assets? Absolutely! Just make sure that you follow the tips above to ensure the LLC protects your personal assets.
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