An LLC can protect your personal assets from business liabilities. Creating a limited liability company is the first step in protecting your personal assets from being used to pay business debts.
Learn how to keep your house, savings, and investments out of the hands of business creditors with LLC asset protection strategies.
What is Asset Protection?
Asset protection is a legal strategy to prevent creditors from getting their hands on your money or possessions.
For example, if someone gets injured on your property and decides to sue you, an asset protection plan can shield your house and other savings from being used to pay the judgment.
How an LLC Protects Assets?
An LLC limits your personal liability for business debts by separating your business from yourself. The legal term used to describe this separation is called "limited liability."
This means that if someone sues you because of something that happened at your business, they can only sue the LLC.
Why Use an LLC For Asset Protection?
Asset protection strategies may be superior to other methods of protecting assets because they can prevent attacks on savings and property in the future.
LLCs can protect assets from lawsuits and other claims in almost every state (check with a local attorney for exceptions).
Additionally, the limited liability company offers flexible management and tax reporting, as well as is inexpensive to start and maintain.
Cases When an LLC Cannot Protect Your Assets
There are cases when the LLC does not protect personal assets. Some of these are:
- You use your personal account to fund the LLC - This is an important factor when establishing a business bank account.
- The LLC has bad or poor business practices - If you do something illegal, risky, or dangerous with your business that causes someone else to get hurt, you lose your asset protection plan.
- You are personally named in the lawsuit - If you are being sued for your own conduct, not your business's actions, then an LLC will not protect you from liability.
What Do I Need To Do To Protect My Assets?
Protect your personal savings and property with an LLC. It is important to consult with a business attorney before making decisions about asset protection so that you know what you are getting into and how best to protect your assets.
However, there are a few things you can do to help protect your assets.
Develop an Asset Protection Strategy
It is important to make a plan for how you will protect your assets before you are sued. When deciding what legal strategies to use, be sure to consult with your attorney about which ones are best suited for your circumstance.
Establish Separate LLC Accounts
- Set up an LLC business account at a separate bank or credit union from your personal account.
- Keep business and personal money separate by not depositing any of the LLC's income into your personal bank accounts.
- Don't co-mingle assets - By keeping them separate, if one account is frozen or garnished, you will still have access to your other savings and property.
- Transfer assets - Before a creditor can take your house, savings, or investments to pay the debt, they must first sue you and get a court judgment. By moving your assets around before a lawsuit is filed, a creditor may not know where your savings are and will have to spend more money trying to find them.
- Open an LLC savings account - This is a different bank account than the business account, and it should be in a separate financial institution from your personal accounts.
Choose the Appropriate Levels of Insurance
Make sure your insurance policies are written to cover all of your assets and debts - This includes business debts, credit lines for businesses, and other personal liabilities.
Remember that you may be responsible for some debts even if they were not authorized by you.
Also, ensure that the amount of coverage is enough to protect your assets. If you have a house, car loan, and business, then your insurance needs to be more than just enough to cover one of those items.
Having an LLC still does not mean that you will not be sued in the future. However, if you are responsible for your own personal conduct, an LLC can help keep assets safe from creditors if you are sued.
By consulting with a local business attorney, you can protect your personal savings and property by setting up an LLC.
This will allow you to run your business without fear of losing your personal savings in the event you are sued for some reason.
However, it is important to consult with legal counsel to determine which strategies will work best to protect your assets.
Use a Registered Corporate Entity
A registered corporate business entity can be a C corporation, S corporation, Limited Liability Company (LLC), Limited Partnership (LP), and Non-Profit Corporations.
The business owner's concern to protect assets is the same regardless of the type of entity that they form. A properly formed and managed Registered Corporate Entity will allow the business owner to obtain maximum protection.
A Registered Corporate Entity forms the basis for a solid asset protection strategy. It is also important to note that in most cases, registration of your entity with the Asset Protection Unit (APU) is not necessary because you are filing an Application to Incorporate or Articles of Association, which will suffice.
Different types of Registered Corporate Entities offer some level of protection, but none offer the same level as an LLC, C Corporation or S Corporation. The benefits are generally limited to shielding your personal assets from claims against your business.
Explore Trusts Options to Protect Assets
Trusts are one option that may be recommended as a way to protect your assets from creditors. There are many types of trusts, and attorneys can advise you on which ones provide the most protection for your situation.
- The Client Trust
- The Generation-Skipping Trust
- Credit Shelter Trust
- A Family Trust
- A Charitable Lead Trust (CLT)
Put Your Revenues Toward Certain Assets
Another way to protect your assets is to keep them out of the hands of creditors. You can do this by setting up a bank account in the name of your LLC and paying for business expenses with the LLC funds.
Does a Single-Member LLC Protect Your Personal Assets?
No, a single-member LLC business entity is not an asset protection structure. A single-member LLC has no protections for the owner in case of personal liability.
If you are using your individual name when forming your LLC, then, generally speaking, you will NOT have any asset protection if sued personally for business debts or claims.
Can My LLC Protect Business Assets from Lawsuits?
Yes, an LLC may help protect your personal assets and business property from lawsuits. The individual property of the owner is still at risk, though if the owner is found personally liable for a debt or lawsuit.
Is My Business Still Liable for Damages or Unpaid Bills?
If your LLC is sued, then the LLC itself will pay these expenses. The owner of the LLC is not at risk (unless they are directly responsible for the unpaid bills or damage).
Asset Protection Strategies LLC: Conclusion
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 in accordance with the laws of your state.