There are many reasons why people should consider having one or more limited liability companies (“LLC”). For business people, many of the reasons are obvious; but there are also non-business reasons to consider placing assets in an LLC. Following are eight of those reasons.
1. Protect Personal Assets from Business Creditors. If structured properly, an LLC may keep business creditors from reaching personal assets such as your home, your car or your personal bank account. But it may not, too. Understanding when an LLC will protect your personal assets (and when it won’t) and how to best structure your business is something all the document prep services and even some discount lawyers may not take time to tell you.
2. Protect Business Assets from Personal Creditors. “How’s that?,” you say. “I thought you used an LLC or a corporation to protect your personal assets from liabilities of the business.” You do. (See 1, above). But what happens if your teen-age daughter just read Judo Chops for Beginners, and she decides to demonstrate her newly-found martial arts on her boyfriend. Then she proceeds to break his arm in four different places and your insurance company won’t cover you because your daughter is underage and using a lethal weapon—her hand. So his father sues you—though the boyfriend still loves your daughter and tells his dad it was just an accident when he tried to kiss her and she said “no”– and the most valuable asset you have is your business. If you have a sole proprietorship, it is possible he can take the business away from you. If, however, you have an LLC, life becomes much more difficult for him to confiscate your most valuable asset (other than your very lethal daughter, of course). This can lead to relatively quick and reasonable settlements.
3. Protect Investment Assets from Creditors. If structured properly, LLC’s can be used to isolate cash and investments from creditors. Say, for example, you are the father of the boyfriend in 2, above, and are able to get a big judgment because the father of the girlfriend wasn’t smart and didn’t have a Pre-Paid Legal Membership so he never read this and didn’t bother putting his business into an LLC. So, you, using your Pre-Paid Legal benefits, sue, and you end up owning the business. You then sell it for $500,000. If you set up an investment company LLC, structure it properly, and put the $500,000 in it, you may be able to keep the next guy — whose arm your not-so bright son broke in four places while demonstrating what he learned from his now ex-girlfriend — from getting all your money.
4. Getting Family Members Involved in the Business. Giving children an interest in an LLC is a method used by some people to bring them into the family business. If it’s done properly it can have some excellent income tax benefits along with providing valuable work experience and “life Lessons” for family members. It can also be a disaster, if there aren’t protections in the operating agreement of the LLC against divorce.
5. An LLC Can Be an Alternative to Using a Crummy Trust for Life Insurance Proceeds. As used here, “Crummy”— is not describing the quality of the trust. Crummy was the name of a man who designed – or, actually his lawyer designed – a special irrevocable trust to receive insurance proceeds on his death; in some cases it makes sense to use an LLC to receive the death benefits rather than a person or a trust.
6. Prestige. Having an on-going business entity gives branding and marketing pizzazz to your business. Which sounds better: “Joe the Carpenter” (a sole proprietorship), or Arizona Carpentry, LLC? If you run a business, you, of course, want the name of your business to sound professional and substantive. By incorporating (an LLC is a type of incorporation, though not an actual corporation), you may help legitimize your business.
7. Real Estate. You should consider holding all real estate, except your personal primary residence, in an LLC. Real estate is a liability producing asset. (See 1, above.) If you have several pieces of real estate, for example, three or four rental properties, you should have each one of those properties in a separate LLC. But you have to be careful when you do this; otherwise, when you attempt to transfer your properties into the newly-created LLC, you may inadvertently trigger a “due on sale” or “due on transfer” clause in the mortgage.
8. Anonymity. If you want to preserve anonymity in your business transactions, this can be done with the use of special LLCs. (Please Note: This type of LLC is substantially more complex than using a regular LLC and it may require some additional legal consultation and assistance above and beyond setting up a “simple” LLC). Doing business in a name other than your own, however, gives a certain amount of anonymity and it may be good marketing strategy. (See 6, above). Also, should you chose to sell your LLC in the future, you aren’t selling “your name” but rather the name of the business, which, hopefully, has established some goodwill and a solid reputation with the public. Building goodwill in a brand name often results in more money to you from the buyer.
Now those are some of the uses of LLCs. So, how do you get one at a reasonable cost? What about getting one of those Nevada or Delaware LLCs you hear advertised on the radio; or, getting forms or services from one of the on-line forms companies? I don’t have room here to tell you all of the reasons why that’s almost never a good idea. But the first reason is that if you fall for one of those radio promos, you’re likely to end up paying a lot of money for things you don’t want or really need—because they will try to “up sell” you. You’re likely to find that the cost of “incorporating” is only the beginning. They are good at “up selling”. They have to be – those radio promos aren’t cheap. Call us today. Why wait to start enjoying all the benefits a proper entity can provide?