What Does an LLC Protect you From?

Many business owners choose an LLC formation for their business to protect their own assets. The acronym LLC stands for limited liability company, so its name already suggests you have protection. However, there is also the word “limited,” which means that you still might be vulnerable in some situations.

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Liability Protection

The main LLC protection deals with any liabilities or debts that the business incurs. In most situations, you are safe from having your personal assets seized in order to pay any debts that your business takes out and cannot repay, unless you have put up a personal guarantee when you took out the loan.

Another main area of personal protection is through any liability that occurs from wrongdoing the employees, co-owners or business performs. If the business is sued and found liable, then your personal assets will remain protected, as long as you personally did not have any involvement.

Exemptions from Protection

A major area where your liability protections are removed is if you commit any wrongdoing or negligence yourself. For example, if you commit tax fraud or intermingle your personal finances and that of the business, you and your personal assets will be held accountable.

There are a few other exemptions. As stated above, you are not protected from debt collectors if you provide the personal guarantee for a loan. In this case, you have already given the lender permission to come after your personal assets if the loan is not repaid per the terms. Additionally, if you sign a contract as yourself, and not as a representative of the business, then you become personally responsible and no longer protected by the LLC. Finally, if your LLC is not in compliance with your state’s laws regarding the formalities and recordkeeping, then you might not have full protection.

If you are ready to form your business, apply for an LLC by visiting this page. Don’t forget that you also will need to apply for a tax ID. If you still have any questions about filing the paperwork, speak to one of our support team members, who are available 24/7.