LLC Asset Protection Strategies (2024 Guide for Experts)

Atty. Danya Shakfeh
Published by Atty. Danya Shakfeh | Author
Last updated: February 7, 2024
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The business structure of an LLC can protect your personal assets from liabilities, however, there are certain strategies you can employ to ensure limited liability protection.

From my experience, running a business while keeping assets safe should be everyone’s top priority.

As a seasoned corporate lawyer, business owners and entrepreneurs seek my guidance on how to maintain personal liability protection.

Read on and learn the best protection strategies and circumstances to avoid personal liability.

Quick Summary:

  • Members of an LLC can protect their personal assets by employing strategies to address debts and lawsuits against the company.
  • These strategies include proactive business planning and avoiding circumstances that may expose your personal assets to liability. 
  • According to The Hartford, the average monthly cost of a general liability insurance is $340.75.
  • Based on my experience in the business industry, the best way to protect your personal assets is to legally separate corporate funds and keep track of all financial transactions.

Strategies for Personal Asset Protection

Staring in front of the computer looking at data

There are several ways to keep your personal assets protected from liabilities incurred by the LLC

1. Open a Business Bank Account

I always stress the importance of opening and maintaining a business bank account to separate the finances of the company and build credit for your LLC [1].

All financial transactions of the business must be confined to the account and maintain records of all payments, loans, and invoices.

Change is not a destination, just as hope is not a strategy. –Rudy Giuliani, Former Mayor of New York and Lawyer

2. Obtain Liability Insurance

Obtain the right insurance based on the line of business and structure of your company.

The policy would protect the company's finances as well as the members' personal assets from debts and other legal action.

3. Establish a Trust

A business trust authorizes an individual or a company to distribute income to designated beneficiaries. Essentially, a trust transfers the ownership of assets to protect liability from debt.

In my experience, an irrevocable trust is best suited for businesses since the assets are protected from creditor claims.

Ways an LLC member Can be held Personally Liable

You may also protect your personal assets by being aware of the circumstances that put them at risk.

1. Undercapitalization

Undercapitalization occurs when the owner(s) deliberately underfunded the business to limit the amount of liability. If the practice is proven and rendered judgment, creditors may pursue the personal assets of the members.

2. Personal guarantees

Any personal guarantees made and signed by a member, to obtain or extend a loan would forfeit limited liability protection.

The personal assets of the guarantor can be used to settle the loan, if the company forfeits.

3. Use of property as collateral

Pledging personal property as collateral for a business loan automatically gives the financial institution rights over the asset if the debt remains unsettled when due.

4. Lawsuits/fraud

Personal lawsuits like fraud or any business wrongdoing exposes the assets of the person to liability. In such cases, the assets of the company remain unaffected, but the ownership interest of the particular member may be seized.

5. Tax liabilities

Since an LLC has a pass-through tax classification, the members are responsible for business tax liabilities. That’s why I remind my clients to report and file taxes on time.

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Why Should I Use An LLC For Asset Protection?

You should use an LLC for asset protection, since the business structure provides limited liability for its members.

Essentially, the company is regarded as an independent entity, separate from its owners, as such, any debts or liabilities incurred by the business protects the members’ personal assets.

FAQs

Does a Single-Member LLC Protect Your Personal Assets?

A single-member LLC business entity does not protect your personal assets since there’s no separation between the owner and the business entity.

Can My LLC Protect Business Assets from Lawsuits?

Your LLC can protect business assets from lawsuits since the business structure offers limited liability protection.

Asset Protection Strategies LLC

As a business owner, you must know that LLCs can protect your personal and business assets under the right conditions.

It is important to speak with an attorney about what type of LLC can best suit your needs and how to properly structure your business and asset protection strategies by the laws of your state.

When it comes to asset protection strategies, utilizing reliable legal services is essential. We experienced the efficiency and professionalism of online legal services, making them our top recommendation for effective asset protection.

 

References:

  1. https://www.irs.gov/irm/part5/irm_05-001-02

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