A Limited Liability Company is a business structure that combines pass-through taxation of a partnership with the limited liability of a corporation. That means profits and losses pass through to the owners. LLCs offer protection from personal liability for business debts, and owners typically risk losing only on what they have invested in the LLC. For this reason, this entity is often considered a “best of both worlds” approach.
Whether you’re looking to form an LLC or already have one, here are a few tips for managing and protecting your assets.
- Protect Your LLC With Insurance
While an LLC can protect your personal assets in the event of a lawsuit, your business assets are still up for grabs. You can even risk the chance of losing your entire business if it’s not insured. For this reason, it’s a good idea to purchase some level of liability insurance.
There are 3 types of liability insurance:
- General Liability Insurance- This policy will help take care of medical expenses, legal defense costs, and judgements/settlements.
- Professional Liability Insurance– This policy can cover alleged or actual negligence, defense costs, personal injury, and copyright infringement.
- Product Liability Insurance– This covers you if the product causes injury or property damage.
- Avoid Mixing Personal & Business Assets
All paperwork – such as contracts and invoices – should have your LLCs name on them, not yours. This way clients will know that they’re dealing with your business and not you.
You should also make sure you create a strong separation between personal and business financial matters. Your business should have its own bank account and credit cards. Establishing and building business credit is just as important as building your personal credit.
Here are some steps to begin establishing credit:
- Obtain an Employer Identification Number
- Establish new lines of credit under the LLCs name
- Establish a business phone number
Once you’ve done this you’ll be able to request business credit in your company’s name.
- Maintaining Corporate Records
Corporate records help protect you against a lawsuit and creditor that attempt to go after your personal assets. Having the correct records and paperwork will help safeguard your LLC. Plus, they’ll aid you if you ever decide to sell your business. Purchasers often want to see your records to evaluate the company’s past performance.
Want more information on managing and protecting a LLC? The lawyers at Stanko, Senter & Mitchell will gladly help you today!