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Understanding The Protections Of An LLC

Understanding The Protections Of An LLC

You filed the paperwork and your business formation is officially an LLC. 


Now let’s come back to reality. Not to rain on your parade, but simply becoming an LLC doesn’t necessarily protect you personally. However, if properly formed and maintained, an LLC will have what is called a corporate veil which is what separates the persons who own the business from the legal business entity. . 

So what exactly are the protections that come with forming an LLC?

The corporate veil of an LLC is one of its biggest benefits. But it doesn’t end there. From business operations to a clear understanding of the consequences from not upholding your responsibilities, the protections that come with forming an LLC can be broad or narrow.

What Is An LLC?

A limited liability company (LLC) is a type of legal entity that people can form to own and operate a business. LLCs are a popular option because they provide the same limited liability as a corporation. However, LLCs are less costly and more simple to both form and operate. 

Anyone running or starting a business should strongly consider forming an LLC. Whether as a sole proprietor or with two or more owners, everyone needs to protect themselves. The reason being is that, if done right, you are not personally liable for the debts of the LLC. This means creditors and people who file lawsuits against your LLC can’t collect from your personal assets- except in limited circumstances. 

As a small business owner, this is incredibly important, because your personal assets include personal bank accounts, personal vehicles, and your home. Instead, lawsuits and debt collectors are often limited to collecting from your LLC’s assets only, such as the business bank account.

Are you a small business owner curious about your legal options and protections? Reach out to Carson Law to find out how we can help you.

How A Properly Formed And Maintained LLC Will Benefit You

It’s important to realize that merely forming an LLC and signing the paperwork doesn’t automatically grant you every protection.

However, when you properly form and maintain an LLC, you have a separate legal entity. Basically, the entity provides a distance in liability between the owner(s) of the business and the operations of the business. 

Aside from protecting your personal finances, LLCs are also highly beneficial in hammering out operations. For example, when there is more than one owner or LLC member, it is best to have a clear understanding of responsibilities and expectations from the very beginning. 

The Protections Of An LLC

The biggest benefit of forming an LLC is the protection of the corporate veil. This is extremely important to both sole proprietors and multi-member LLCs. 

Imagine if a client, competitor, vendor, or anyone sues your business for any reason. Whether or not you feel they have a basis for their claims is unfortunately irrelevant. Without an LLC, the person suing you could go after every penny to your name. But as mentioned above, a proper LLC would limit the scope of what they can after to the LLC’s assets. 

Additionally, the formation and maintenance of an LLC in regards to operations also has to do with protection. Consider a situation where several people decide to open a business together. Down the line, a dispute arises between the LLC members. If in the formation the responsibilities and expectations were clearly outlined and understood by all parties, it might not be a big deal. 

However, consider the above scenario, but without a properly executed LLC. In a situation like this, a member not living up to their expectations has no consequences. The other members who would like to end the business relationship don’t have the option to take it to court because they have no leg to stand on because of the lacking LLC. 

So rather than a dispute being resolved seamlessly, the LLC members may reluctantly choose to continue working together. Without the protection of a well formed LLC, these hypothetical people are stuck working with someone they would rather not associate with, but have no way of eliminating them from the entity. 

All this to say, if you don’t want to be stuck working with someone who doesn’t hold up their end of the deal, make sure your business formation includes a well thought out operating agreement with the help of an attorney.

Are you wondering if your LLC will protect your personal assets? Don’t sit with that anxiety. Schedule a consultation with Carson Law today to protect yourself and your small business.

What Happens When The LLC Goes Into Effect?

When a properly formed LLC goes into effect, the business owner(s) can now confidently work along with the operations they outlined themselves. However, it is a continuously moving machine. To continue properly maintaining your LLC, you can’t simply file it away and forget about it.

For instance, even the sole member of an LLC (or their attorney) needs to write resolutions to allow themself to do certain things. It may seem overboard, but that is a key point in ensuring your personal assets remain separate from your LLC’s assets. 

Over the course of the pandemic, there’s been a lot of news of evictions. Are you wondering what this has to do with LLCs? Well, if a commercial entity were to stop paying rent, the landlord can sue them. However, a proper LLC formation will prevent the landlord from being able to sue for the personal effects of the LLC’s members. Instead, the landlord will only be able to sue the LLC.

However, an improper LLC may not offer those same protections. Any neglectful oversight could leave your personal finances and assets vulnerable. 

How To Properly Maintain Your LLC

The best way to make sure you are properly maintaining your LLC is to hire an attorney. This is definitely not something you want to take on yourself with a wing and a prayer.

If you’re not investing your time and efforts into maintaining your LLC, why’d you form it in the first place?

To start, talk with your attorney. Make sure that your business operations are clear. If you are the sole member, determine what you need to do on your end. Find out whether you can write resolutions to grant yourself permission or if that’s something your attorney needs to do.

If you are in a multi-member LLC, then clearly establish the responsibilities and expectations of each party. Because what happens if someone doesn’t execute their responsibilities? It’s always best to have those details laid out from the very beginning. 

This is one of those details that can bring about problems in the future because everyone was so excited in the beginning. But if you don’t have an action plan for failure to perform duties in the LLC, then you will find yourself in hot water down the road. After all, good intentions don’t always translate to acceptable results. 

Talk To The Right Lawyer To Ensure You And Your LLC Are Protected

If you are running a small business, then it’s imperative that you protect yourself. You’re already putting in the hard work, so the last thing you want is to watch one mistake take every penny you have. 

Carson Law is dedicated to bridging the legal access gap to small businesses. From new business formation to trademarks, copyrights, initial patent reviews, and more, having the right attorney on your side protects you and your business. 

Don’t wait another day wondering what challenges tomorrow might bring. Instead, make the proactive choice to properly form an LLC. Schedule a consultation with Carson Law today to find out how we can help you confidently run your business under the corporate veil of an LLC.