LLCs are a business structure where the owners are afforded separation from their business. Forming a limited liability company (LLC) offers you liability protection from the debts and liabilities of your business. This means that if your business is sued you will be given protection for your own personal assets. Rather than have creditors come for your home, bank accounts, or personal items, they would be untouchable. You would only be at risk for what you have put into the company. Limited liability companies offer this benefit that is given to corporations as well, but also offer some benefits from that of a partnership or sole proprietorship.
When you form an LLC, you are creating a new business entity. This is formed completely separate from its owners, and it offers you limited liability protection. As a general rule, if an LLC can’t pay its debts, then the creditors cannot go after the owner's bank accounts or assets. Instead, LLC’s creditors can only go after the LLC’s bank account and other assets.
When it comes to personal liability, an LLC will not protect against this. This means that due to your own negligence, malpractice, or other personal wrongdoing, that you commit related to your business, you cannot shield your assets This is why it is essential to hold liability insurance.
It is important to note a few limitations on this. If you owe a creditor and transfer money out of the company, then the transaction may be taken as fraudulent. If you do not keep enough money in the company in order to pay the expenses, the court may hold you personally liable regardless. This will eventually lead to undercapitalization of your business and even possibly a lawsuit seen as an effort to defraud business creditors.
When looking into how to form an LLC there is a specific process that a lawyer can help you with. The lawyer can help to ensure that you are in compliance with all state laws. First, you will need to give your LLC a unique name, then follow up by choosing a registered agent in the state of formation. This person will need to have a physical address in the state of formation. This is to ensure that they can accept due process should your business get sued.
Next, you will need to begin filing the articles of the organization. This establishes the existence of your LLC. You will also need to pay a filing fee, which will vary based on the state you are forming in. This should be followed up by your operating agreement. The operating agreement will outline the ownership of your LLC, as well as operating procedures. This ensures that should something occur, all business owners are on the same page. It reduces the risk of future conflict.
Finally, you will need to obtain an EIN, similar to a social security number for your business, and open a bank account. Soon enough you will be ready to start doing business legally as an LLC.
Hiring a business lawyer ensures that you stay in compliance. Rather than stress to understand what you need to do and hope that it works out, a business lawyer is well versed in the laws.