When you set up a commercial venture, you choose between a sole proprietorship, partnership, and an LLC.
A big mistake that people make is failing to separate their commercial establishment from private properties, and end up losing the properties to creditors.
Forming an LLC is a sure way to guard your properties from getting attached for commercial debts. But this isn’t sufficient – it is essential that you come up with an asset protection strategy for the LLC.
Establishment of an LLC
Forming an LLC in New York requires just $200 in fees. You can apply it physically or do it online.
When you establish an LLC, you create a separate commercial unit to separates your commercial establishment from your private properties. In the end, you get what we call limited liability protection.
Establishment of an LLC is driven by law, which means if it cannot handle its obligations; creditors have to go after its properties, but not your private properties such as homes and vehicles.
What you stand to lose is the sum of money that you spent in starting the business, nothing more. However, we also have exceptions to this rule. If you have acted as a guarantor for a business loan, then you are liable for its repayment. Talk to an asset protection lawyer in New York to understand what the law stipulates when it comes to LLC establishment.
So, how do you enjoy top benefits from an LLC asset protection strategy?
Have LLC Insurance
If you make a mistake and get litigated, the LLC doesn’t shield you. Instead, it is up to the insurance policy to take charge. It is, therefore, ideal to take out comprehensive liability insurance cover that protects your interests, both private and commercial, during litigation.
Sustain the LLC as a Separate Entity
Any shareholder who mixes private properties with commercial properties and ends up getting sued, is highly probable to lose both if the commercial debts are more than the available monies. If your name is inked on the business title in any capacity, the court might extend the business liability to you.
To ensure this doesn’t happen, keep your private records distinct from the business issues. Right from the beginning, the LLC needs to financial documents written in its name.
All formal documents that relate to the business need to have the official company name imprinted on them, and all need to be duly signed by the officials of the company. This way, any client will be sure they are working with a commercial entity rather than a person.
Use Credit in The Company’s Name
Being a guarantor is one reason why individuals become responsible for the obligations of the business.
Acting as a guarantor means you decide to cover debts when the business isn’t able to do so. To become a guarantor, you might be asked to use one of your properties as security for the loan, so that if the business cannot fulfill its end of the bargain, you are held liable.
New business owners usually think that since the loan is small, they can guarantee the amount using their private properties. This is wrong because with time, the loan grows and you find yourself committing more properties to it.
You can avoid acting as a guarantor by establishing credit in the name of the LLC. To achieve this, pay all bills in time to show a record of sustained revenue as well as profit. Discover more about the implications of being a guarantor from an asset protection attorney.
Don’t Retain a Lot of Money in the business
When the LLC gets sued, the money in the account is utilized to pay debts owed. To reduce the vulnerability, you need to keep only as much money as you need in the account and use the rest for paying the owners.
However, be careful about this. If you owe money and you move it into the owner’s account, the court might suspect a fraudulent transfer.
Protect Your Private Properties. Today
When it comes to asset protection for your LLC, make sure you have an asset protection plan for the LLC. Talk to an asset protection lawyer to advise you on setting up the LLC the right way and then make sure you separate your private properties from the LLC.
