Will Your LLC Legally Protect Your Personal Assets?

(Newswire.net — March 9, 2020) Lehi, UTAH — Many entrepreneurs do not realize that simply forming a Limited Liability Company (LLC) will not protect them from financial distress and personal liability in the event of a lawsuit. One of the primary benefits of forming a legal entity is to protect a business owner’s home, personal bank accounts, and other assets. A Utah based law firm has made it easier for business owners to create an LLC that is quick, affordable, and will offer the peace of mind of protection. 

An LLC allows a business owner to become two separate beings-the business itself (legal entity) and the business owner (individual). The primary reason to create an LLC is also the reason homeowners build a fence around their homes – to protect their personal property. Like a good fence, an LLC will separate the business owner’s personal bank accounts, homes, or any assets they may own from risks the business may face. But simply creating and registering an LLC with the state is not enough to give you personal protection from lawsuits or financial distress.

Once an LLC is created there is a legal obligation to maintain it. These legal obligations include renewing the license each year, not mixing business and personal funds, and documenting everything they do, from taking minutes at meetings to the transferring of money and the hiring of employees. The failure to follow these steps is too risky and if problems arise a business owner’s voice will no longer matter, the state will decide what happens.

The backbone to every LLC is the operating agreement, a step that many small business owners gloss over perhaps because it seems like a tedious step with little impact. Most operating agreements are written quickly and leave out key components that will allow the corporate veil to be pierced. According to Entrepreneur magazine key components that need to be addressed are:

●      The organization of the company. Who is creating it and what does the structure look like?

●      Management and voting rights. Who has active roles in management and who doesn’t?

●      Profit and loss. How will that be distributed?

●      Operational requirements. How will the company operate and who is responsible for what?

An operating agreement is needed to prove you are a real business, but you must have a well written operating agreement that is tailored to fit your specific business. It is the foundation of your LLC. Dana Ball, a small business attorney says, “The difference between a good verse bad operating agreement will depend on the clarity of terms, who prepared it, how old it is, whether it applies to your company and your expectations.”

If the terms don’t apply to the specific business of the LLC or how you operate the business, then you make it possible for a party to pierce the corporate veil in a lawsuit. This would expose you personally to the harms and liabilities of the company. Never assume you are immune to personal liability just because you have an LLC.

Because entrepreneurs take such tremendous risks to make their small business dreams become a reality it is important to protect their personal assets. A business owner can’t prevent another person from threatening or actually filing a lawsuit. But they can make it difficult for litigation to be successful by having a specific and legally binding LLC to protect their dream.