What does an LLC protect?

An LLC (Limited Liability Company) protects the personal assets of its owners (members) from being used to cover business debts and liabilities, limiting their financial risk.

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An LLC is also known as a “limited liability company.” This business structure legally separates the company from the owner or owners. These owners are known as members, and while they may contribute funds, time, and energy to the business, they’re legally separate entities. 

This means that your personal assets usually aren’tat stake if there’s a lawsuit or other legal action taken against the company or if the company goes into debt. Furthermore, an LLC is a pass-through tax entity where members may report their profits and losses on their individual tax returns, similar to a sole proprietorship. This is in contrast to the other type of business entity that provides personal liability protection, a corporation. In a corporation, profits are taxed at the business level and again when distributed to the owners, which is called “double taxation.”

So, if you’re starting your own LLC alone or with other members, keep reading to learn more about the different aspects of protection you’ll have. 

What is limited liability protection?

One of the benefits of an LLC is the protection of the members’ personal assets. This is considered limited liability protection. It’s a legal structure for an organization where any type of drastic loss won’t necessarily hurt those who have invested beyond the amount they’ve already invested in the enterprise. Furthermore, since members are part of the organization, their private assets are generally not at risk, only those of the LLC. 

If some sort of legal liability occurs, assets are usually protected. However, LLC members can still be personally liable for things like personal wrongdoing and negligence. Likewise, if a member personally guarantees a loan for their LLC, they’ll still be personally responsible for paying it back.

Why does it matter?

So you have a certain amount of protection; why is this important? Well, when you run a business, certain assets can be at risk even when protections are in place. Insurance can help protect some assets, but having owner protection baked into the business structure can be very important to those starting one.

Limited liability is a good form of protection for owners who may have assets put at risk in other business settings. For example, if a company member owns property and has a business dispute, that and their other personal assets are usually protected. 

In contrast, the law makes no distinction between a sole propritorship or a general partnership and the business. Consequently, the business’s assets and the owners’ assets are considered the same, meaning personal assets can be seized to pay off business debts. 

Advantages of Limited Liability

Obviously, having limited liability gives peace of mind to a business owner because, in most cases, their risk is limited to the amount of money and assets they put into the business. If the business is successfully sued or goes bankrupt, they may lose what they’ve invested in the company, but they usually wouldn’t lose their personal savings or assets like their home, car, and other possessions.

Who does an LLC protect?

In most cases, the LLC structure protects the business owners and employees from mistakes made during the normal course of business. Someone suing the business can go after all of the LLC’s assets, but they usually can’t go after the personal assets of the owners or employees except in a few situations that we’ll cover next.

Limitations of LLC Asset Protection

Despite the protection an LLC provides, it won’t protect your personal assets in all cases.You may be personally liable in certain situations if something occurs while you run your business. For example, you can be held personally responsible for the following:

  • Directly causing an injury during the operation of the business due to negligence
  • Not paying the taxes withheld from employee wages to the government
  • Intentionally doing something that’s illegal, reckless, or fraudulent that harms the company or someone else
  • Failing to treat the LLC as a separate entity (for example, mixing business and personal funds)

Forming an LLC is not foolproof protection from anything that happens; you could still face a situation in which you’re held personally liable for something related to the business. This is where liability insurance can help mitigate potential problems.

We can help!

We can help you form an LLC today to protect your personal assets from the liabilities of your business. You can start your venture for just $0 and add some of our many services to help you run and grow your business.

Get going today with all the support you need! Reach out today by calling 844-493-6249 or visiting our Start a Business page to begin the process.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

Limited Liability Protection FAQs

  • Forming an LLC creates a separate legal entity from its owners, so lawsuits against the business can usually only collect from the business’s assets, not the owners’. Unless the members did something criminal, negligent, or otherwise wrong, the assets of the LLC are at risk, not the members’.

  • The main advantage of limited liability for business owners is that it usually protects their personal assets from claims against the business.

  • Limited liability is a good thing for business owners. In most cases, it protects the personal assets of the business owners and employees from the debts and liabilities of the business.

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