Accountants and attorneys love limited liability companies. But do limited liability companies—LLCs for short—really make sense for small business owners. Probably. And for two almost unknown reasons.

The Big Legal Benefit of an LLC: Limited Liability…

The big legal benefit of an LLC is that limited liability companies provide all the same liability protection as a corporation—but with much less red tape. A regular corporation, for example, requires regular stockholders meetings, a board of directors, regular board meetings, and of course records of all these activities and bodies. But a limited liability company doesn’t.

This legal liability protection provided by an LLC can be extremely valuable. One local attorney I often collaborate with, for example, tells his clients that an LLC protects business owners from the worst case scenario—which in his mind is a “slip and fall” accident on the business property.

With an LLC as the business owner, so says my attorney friend, the “worst case scenario” is liquidation of the LLC. That liquidation means the people who own the LLC wind up with nothing—which isn’t good. But all the owners lose is what they’ve invested in the LLC.

In comparison, without an LLC, the business owner’s “worst case scenario” if there’s a “slip and fall” accident is that the owner can lose almost everything they own. In other words, the business owners could lose not only their investment in the business but many other assets as well.

Let me issue a caveat here, however. You may not get as much legal liability protection from an LLC as you want or hope. Say, for example, that you’re repairing the roof at the business location and that, unfortunately, you happen to drop a hammer onto a customer’s head during the roofing project. Your LLC probably won’t protect you from that sort of tort liability. In other words, the customer can probably look not only to your LLC for payment of damages related to the dropped hammer but also to you personally.

And here’s another example, which unfortunately makes things even murkier. What happens if someone working for you, one of your employees or subcontractors, drops a hammer on the customer’s? The LLC may offer you some protection in this case. But you may still be personally responsible. The customer might reasonably argue that you should have done a better job managing the employee or subcontractor, for example.

If you’re extremely concerned about the asset protection features of setting up and operating an LLC, get an attorney involved in your business planning. An attorney knowledgeable in LLC and business law can help you increase the liability protection that you gain from using an LLC for your business. And this consultation doesn’t need to be particularly expensive. You may be able to buy an hour or two of time from a good local attorney and get all your LLC- and liability-related questions answers.

The Big Tax Benefit: Enormous Tax Flexibility…

Page 1 of 3 :: First | Last :: Prev | 1 2 3 | Next