How to Protect the Business Assets of Your LLC
If you established your small business as a Limited Liability Company, you likely chose an LLC because of the benefits of the structure, including liability protection for your personal assets. After your business is up and running, it is important to protect the business assets of your LLC as well.
At Peterson Law Offices, we provide business clients with ongoing counsel and advice to keep operations running smoothly while protecting business and personal assets. In this discussion, we explain some of the strategies that we help our clients implement.
Understanding the Liability Protection of an LLC
The liability protection you receive by setting up your business as an LLC is significant, but it is not absolute. Assets of the business itself (including any money you invest in the business) are vulnerable to claims of creditors. You may also face other legal claims that arise from business operations.
You should make certain that you fully understand the liability exposure of your business. When you rely on an experienced business law attorney for counsel on an on-going basis, your lawyer makes certain that you understand potential liability and take the necessary steps to protect your business and your personal assets.
One of the essential strategies for protecting your business is maintaining appropriate levels of insurance, including liability insurance. For detailed information about all the types of insurance you should consider, you may refer to our separate article, What Business Insurance Do You Need to Protect Your Arizona Company?
Keeping Business and Personal Assets Separate
To protect your personal assets from exposure to business liability, you should keep entirely separate records and accounts for your business assets and personal assets. There are a number of ways to accomplish that goal. For example, you should have separate bank accounts and credit cards for the LLC. In addition, all business documents, including contracts, invoices, receipts, and purchase orders, should always have only the name of the LLC on them and should be signed on behalf of the LLC, not in your individual capacity.
One of the important roles of your business attorney is helping you to ensure that you maintain the LLC as an independent entity. Having your lawyer review your business forms, contracts, and other legal documents on a regular basis is an important step to take in protecting your assets.
To the extent possible, you should not personally guarantee debts or obligations of the LLC. When you start out, it may be difficult to avoid pledging a personal asset (like your home) as collateral for a business loan for the LLC. If you do that and default on the loan, the creditor may go after your personal property to satisfy the debt. As your business grows, make sure that you establish credit in the name of your LLC, pay bills on time, and show a record of revenue and profit. Having a credit record for your LLC can help you avoid pledging personal assets for loans or lines of credit.
By treating and maintaining your LLC as the independent entity that it is, you avoid commingling business and personal assets, which may create a problem in terms of liability. You also avoid confusing clients, customers, and other businesses about whether they are dealing with you as a business or as an individual, which can also lead to problems.
Planning the Future for Your Business and Your Family
When you get caught up in the details of running your business and building it into a successful venture, it’s easy to forget about planning for the future of your business and your family. What happens in the business long-term affects not only the operations of the business, but it can affect your family and their future too.
Your business should be part of a complete estate plan that ensures your family benefits to the greatest extent possible from your business investment, no matter what events occur in the future. Having a business succession plan in place protects not only the future of your business, but your family as well.
If you have a family business, your succession plan also makes certain that your family can keep the business and continue running it when you’re no longer part of it. In many cases, business continuity and family financial security are inextricably linked. Establishing an estate plan and business succession plan that recognize future potential contingencies is the best way to protect the future of both your family and the business.
Schedule a Free Consultation with an Experienced East Valley Business Law Attorney
Attorney Shane Peterson assists businesses of all sizes and types with the important legal considerations involved in setting up and running a business as an LLC, including protecting your business assets and personal assets both short-term and long-term. Shane has extensive business law and estate planning experience and helps business owners address both of these critical areas to ensure the business and family are fully protected now and in the future.
Peterson Law Offices provides high-quality legal services at affordable prices. Your first consultation is always free of charge. We welcome inquiries from clients throughout the East Valley, including Queen Creek, San Tan Valley, Gilbert, Mesa, and Chandler. Schedule your free initial consultation by calling 480-878-5998 or using our online contact form.