Over the recent years in the United States, many new businesses have formed LLC’s. The ease of establishing an LLC is appealing but one must be certain to follow some very important steps and recommendations in order to ensure your LLC can protect you as best as possible.
NOLO Law for All discusses several situations where your LLC may not protect you completely from personal liability. Some of them are as follows:
- An owner may be held personally liable if she or he intentionally hurts someone.
- Personally guaranteeing a business debt or bank loan and the LLC defaults
- Not depositing taxes held from employees earnings
- Does something illegal or fraudulent
- Not treating the LLC as a separate entity from your personal assets.
The last reason can certainly cause problems and below are the five steps to take actions that are in your control to protect your LLC.
- Set up a separate bank account – this is extremely important to separate your personal finances from that of the business. Also, when you are signing checks or any other financial documents, make sure that you put the name of the member or manager of the LLC. Even if that person is you, there needs to be a distinction from your business and personal account.
- Having enough capital! – Before embarking on your LLC adventure, you must absolutely make certain you have enough funds to cover expenses and liabilities. This way hopefully the court will not look at your personal assets if they feel you were financially prepared for your business.
- Insurance is a must! – Adequate and proper insurance must be purchased for your LLC to make certain everything is covered and you are protected as best as possible.
- Prepare an operating agreement – Even if you are the only member of your LLC, this is extremely important. This agreement fully describes the agreement between you and your members. It needs to be a formal written agreement. Check out our article regarding items to include in your operating agreement.
- Document everything – You have heard the saying to dot every i and cross every t. That applies here as well. Make sure every business matter is documented and easily accessible so you appear organized and knowledgeable. Have an answer for every part of your business if you are asked.
While your LLC can’t guarantee 100 percent protection, you can be much more confident if you follow the appropriate steps. If you are thinking of forming an LLC or have questions regarding them or any other business type of concern, please check out our knowledge center and blog. Maxfilings can help you form an LLC for your business with ease and confidence, so check out our website to get started.