Protect Your Assets: Form an LLC (2/11)
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- Опубликовано: 4 ноя 2015
- ▶▶ Learn more about LLCs: llcuniversity.com ◀◀
In this video, we explain:
- The biggest "newbie" mistake entrepreneurs make
- How to protect your personal assets if your business is sued
- What a Legal Entity/Business Entity really is
- Natural Person vs. Legal Person
- Personal liability protection
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-- #1 NEWBIE MISTAKE --
As entrepreneurs, we're often told to think big and move fast.
Thinking big is very important to success...
But moving too fast can often be dangerous. Especially in the beginning.
Many new entrepreneurs jump into their business way too quickly, overlook important details, and then they make costly financial and legal mistakes.
These mistakes could seriously jeopardize the long-term success of your business.
The biggest "newbie" mistake is not setting up a Legal Entity for your business.
If you don't create a Legal Entity, the law will view your business as a Sole Proprietorship (if there is 1 owner) or a Partnership (if there are 2 or more owners).
Both a Sole Proprietorship and a Partnership leave your personal assets exposed.
If a Sole Proprietorship or Partnership is sued, the owner's personal assets (like your home, your cars, your bank accounts, etc.) are at risk of being used to settle business debts and liabilities.
So what kind of options do you have for setting up a Legal Entity?
The most common Legal Entities that people form are LLCs and Corporations.
But, before we get into the details, it is important to first understand their foundation.
Let's discuss what a Legal Entity really is...
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-- LEGAL ENTITY/BUSINESS ENTITY --
A Legal Entity is the same thing as a Business Entity, and we're going to jump back and forth between the two terms in order for this discussion to make more sense.
In the eyes of the law, a Business Entity is a "Legal Person".
In the eyes of the law, you and I are "Natural Persons".
A Natural Person is a living, breathing human being that functions independently and makes decisions on their own.
A Legal Person is only functional through the work and actions of Natural Persons acting on its behalf.
A Legal Person is considered by law a separate and distinct "person" from its owners.
-- "PROTECTIVE WALL" --
This separation is what creates a "protective wall" between your assets and the assets of the business...therefore, this keeps your personal assets safe if your business was to be sued.
Think of a Natural Person as a regular human being like you and I.
Think of a Legal Person as a Corporation like Microsoft or IBM, or even companies like your local grocery store or bike shop.
Although a Business Entity is not an actual living, breathing person, it shares many of the same rights and responsibilities as you and I do.
-- WHAT CAN A BUSINESS ENTITY DO? --
- It can make money,
- own property (such as real estate, boats or aircraft),
- enter into contracts and agreements,
- open bank accounts,
- it can sue and be sued, and
- pay taxes
Basically, the only thing a Legal Entity can't do is vote in an election, run for political office, or do laundry.
By setting up a Legal Entity, you are creating a business organization that can interface with customers, clients, vendors and more.
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-- PERSONAL LIABILITY PROTECTION --
And most importantly, by setting up a Legal Entity you are keeping your personal assets safe.
In the event of a lawsuit, creditors can only go after the assets of the Legal Entity, and that is all they can get...
They cannot get to your personal assets.
Personal liability protection is the #1 reason that people set up a Business Entity.
The two main types of Business Entities that people form are Corporations and Limited Liability Companies (LLCs).
We compare these in more detail in our "Sole Proprietorship vs. LLC vs. Corporation" video.
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-- WHICH IS BEST FOR YOU? --
To learn which Business Entity is best for you, visit our website:
llcuniversity.com
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Hey folks, make sure to check the site for most up-to-date information: www.llcuniversity.com/llc-asset-protection/. Or select your state and start forming your LLC with our free guides: www.llcuniversity.com/
Thank you for a very informative and to-the-point video series
You're welcome!
Awesome video!
Thanks Abraham!
If we move with intent to and do make another state our home, 1) do we need to set up or purchase a new LLC, state respective, 2) do we need to do a transfer process, or 3) can it remain having been formed in one's original home state?
What conditions call for or make a DBA most appropriate? Is that simply to register the name of your brand or business and is there an effective or vulnerable difference in calling it a brand name or business title ?
What law dictionaries do you recommend?
Thanks for addressing any of these.
Hi Olivia, if you're soon moving to another state and will change your residency there and begin doing business there, it'll be easier to form your LLC in that state. "Moving" an LLC (redomesticating) can be a real pain. We have info and when you would (or wouldn't) need a DBA for your LLC here: www.llcuniversity.com/dba/do-i-need-to-file-a-dba/. Hope that helps!
Would you happen to know any assets protection agencies in Texas. I have multiple properties in different states and I want to proceed with this protection.
Hi Nicole, we don't at this time.
If I want to open an llc and work in different states what should I know and do to ensure the best decisions?
Form the LLC in your home state. You can still do work in other states.
I understand that an LLC can protect personal assets, but does it work the other way around?? Would my business assets be safe from personal risks/liabilities (debts, lawsuits, etc)?
Great question Jason! This protection is provided in some states, and typically referred to as charging order protection. We'll have more videos on this soon. What state are you forming an LLC in?
I assume this works both ways, if you are to be sued personally would that also protect your business assets?
Hi Donovan, no. An LLC only protects one's personal assets in the event of liability within the business. If you're sued personally, LLC membership interest could become at risk, depending on the situation.
Mentor , If i form llc which my friend and we run the car ranting business ( we have drivers and we provide survice for transportation ) and if in case car got in accident then who will be responsibel for accident?
Hello, it depends on the laws of the state where the accident occurred and who owns the vehicle. We recommend adequate insurance and proper agreements in place with drivers. We recommend speaking with an attorney for help.
So say I incorporate a business "Cool Ice Inc." ... and now I open a website and I call "Cold Cold Ice" and I refer to the company by that name. What links the two LLC and the "company" and.... who's to say if someone sues me, that I can say "well you should actually sue my LLC" ?
Having a domain is one thing, but if you are going to refer to the company as "Cold Cold Ice", then you'd also want to register a DBA (doing business as) name that is owned by the entity. A DBA may also be called a Fictitious Name or Trade Name. The copyright and all legal disclaimers should show the company name and the DBA name (if applicable). And the website hosting and domain registration should all be setup in the company name. Those are the "connections".
What are best practices in running an LLC to avoid having your corporate veil pierced?
I'd say biggest one is commingling of personal and business assets/finances. Don't pay for personal expensed with your business account and vice versa. Additionally, keep the business properly capitalized, keep up with you LLC's Annual Report (if applicable), and keep written documentation of contributions and distributions of capital and profits (can be done in Word, or any document processor), hold a yearly meeting (with yourself, or members) and keep minutes documenting important decisions you made. Hope that helps.
Hey thanks so much for the detailed reply!
You're welcome! Let me know if you need anything else.
should i form multiple LLC's for each property for even more protection, instead of putting multiple properties in 1 LLC?
Hi Rudy, there isn't a black and white answer to this. You can do either one and it could depend on multiple factors.
Can you open other business under with the LLC
Hey Arthur, yes, you can. We have information on this here: www.llcuniversity.com/multiple-businesses-under-one-llc/. Hope that helps.
This is confusing. I live in oklahoma and operate a small family counseling business. Others have told me that establishing and LLC (or PLLC) will not protect personal assets, that that protection is only granted in certain states. If this is the case, of what value would it be to have an LLC?
If it’s a single member LLC it will not protect you. Have to be multiple ppl holding the LLC in Oklahoma but you can still create your LLC in Oklahoma and create another LLC in Wyoming then put the Oklahoma LLC inside the Wyoming LLC. Wyoming LLC protects you no matter what!
@@osas201 Very interesting. Thanks for the clarification.
@@osas201 if it's a single member S-corp (as opposed to an llc) does that provide protection for personal assets?
Hi Allen, a Single-Member LLC (or Multi-Member LLC) in Oklahoma will protect your personal assets in the event your business is sued.
And an S-Corp isn't a state-level entity. It's a federal tax election that "sits on top of" either an LLC or Corporation. More info here: www.llcuniversity.com/irs/llc-taxed-as-s-corp-form-2553/
What osas201 is referring to is "charging order protection". It's like the reverse. Meaning, if you're sued personally (say a really bad car accident, for example; where insurance doesn't cover anything), in an extreme scenario, your ownership of a SMLLC is more vulnerable than a MMLLC. However, it's not as doom and gloom as many videos/articles make it out to be.
Meaning, you'd have to be personally sued for a massive amount, then go to court (not being able to settle), lose in court, get a judgment, not be able to pay the judgment, and then the creditor would look at other assets to help pay the judgment. They wouldn't just immediately look to the LLC. They could look at other assets. However, a simple action you can take to protect yourself in this scenario is to get personal umbrella insurance (your car insurance carrier may offer this). It's only a few hundred dollars per year for $1m+ coverage.
So If you don't Own anything should you form an LLC?
It is still recommend since you could have your wages garnished. Hope that helps. Your job/income stream could be considered an asset.
What if i am 21 and live with parents.. Can my parents loose their home
No. If you use your parent's address for your LLC, that doesn't mean your LLC owns the house (and therefore it's an asset of the LLC).
Hey do u have a email that I can email u how do I apply for LLC for my online business I live in Florida
Hi Eisha, we don't offer email support in that fashion, but you can follow our free Florida LLC course here: www.llcuniversity.com/florida-llc/. It'll walk you through the steps of forming your LLC in Florida. Hope that helps.
Eisha's Hair Beauty / hair tips go online to legalZoom for a LLC that’s what I did was only $500 and you can get your EIN # free just go to the IRS web site
Is someone’s personal assets ALWAYS protected if their business is sued if they have an LLC? Is it foolproof with no loopholes?
I don't think any asset protection is 100%. For example, if the business owner commits fraud or is grossly negligent, they could be sued personally.
LLC University I see. Thank you.
@@calciofan828 - You're welcome. There's a lot more to it, but our channel isn't really about asset protection (just this video is about asset protection + LLCs), however, they are many youtube channels dedicated to asset protection. I'd aim to find content specific to the state where you are a resident as there are often state-by-state asset protection rules already in the state's laws.
You need a tailor.
Hey John, you're right. Need to get things a bit more fitted. It's actually on my to-do list as we're going to update/refresh the brand and image. Any other suggestions you have? Thanks for the feedback!
@@llcuniversity A uniform is always going to be a uniform. Fitting or not. You want a comfortable prison or an uncomfortable one?