Have you ever thought to yourself, “What if someone slips and falls on my property?” or “What if there’s an accident or injury within my business?” The scary reality is that your personal assets are at risk of being taken from you unless you have the protection of a business entity with limited liability.
There are an array of entities that provide personal limited liability protections, but our choice is the Limited Liability Company (“LLC”) due to its income allocation options, its high degree of management flexibility, and its pass-through taxation treatment. Additionally, there are less stringent statutory requirements for maintaining an LLC than there are for other entities, including corporations.
The most important benefit of an LLC, however, is the limited liability protection provided to the LLC’s Members, or owners. We often use the analogy of an LLC being a “bubble” of liability protection, if maintained correctly. When you create an LLC for your business operations, management of other entities, commercial real estate, or your residential rental properties, you are putting those assets into a protective bubble. When property is properly owned and maintained by an LLC, the liability is removed from you individually and excludes personal assets. This means that, in the event of a lawsuit, the only assets at stake in the lawsuit are the assets within the “bubble” of the LLC. An LLC owner only risks the amount of money he or she has invested in the business. Personal assets such as your home, bank accounts, and other assets are generally safe.
You might ask, “Who needs an LLC?” Anyone with the slightest bit of liability exposure could benefit from a properly structured and maintained LLC. In other words, if there is a chance that you could be sued for something related to the assets of the LLC, you have possible liability exposure. An LLC is not just for those with large businesses—it may benefit people with just one rental property, or anyone with a side-business that only operates occasionally (e.g. on weekends).
Even if you think your business operation is relatively safe, or even if you take great measures to keep your rental properties safe, it’s always better to have the protection of an LLC in place for you and your family.
The attorneys at Evans & Davis are here to answer your questions and help you start the process of forming and maintaining a new LLC. Call us at (866) 708-2335.