By Lori A. Curtis

If you are a business owner, the best way to protect your business is through a properly organized business entity, either in the form of a corporation or a limited liability company (LLC).  In most circumstances, an LLC is your best option.  It is fast and easy, and the costs are minimal – while the benefits are tremendous.

Even distributors, associates or consultants in direct selling, network marketing, or multi-level marketing can benefit from conducting business under an LLC rather than operating as a sole proprietorship (just a fancy phrase for, operating your business as an individual) or as a partnership.  An independent contractor who is not incorporated is considered a sole proprietorship. (The key question is, do you get a 1099 at the end of the year?)

If structured properly, an LLC may keep business creditors from reaching personal assets such as your home, your car or your personal bank accounts.  Without the proper protection a single lawsuit can devastate your entire family.  In some circumstances, you can also protect your business assets from personal creditors, as well. 

Let’s say your daughter is driving down the road, talking to her friends and texting (of course, none of our children do this!).  She receives a message from her boyfriend breaking up with her.  Devastated, she freaks out and starts sobbing. She doesn’t see that motorcyclist next to her and inadvertently runs him over.  He sues, and for a number of reasons, your insurance does not cover the lawsuit and its damages.

If you have a sole proprietorship, your business assets are at risk to pay those damages.  However, if you have an LLC, it is much more difficult for a judgment creditor (in this case, the injured motorcyclist) to confiscate business assets.

(There are, of course, always exceptions to all of these general rules, but these are rare and should be discussed with an attorney.)

An LLC is also useful in estate planning and asset protection.  Let’s say you own rental real estate. If the property is held in your own name and the hot water heater explodes, the renter can sue you personally for damages.  If the property is owned by an LLC, your personal assets are protected from a lawsuit (unless there is gross negligence, which is another topic for another day).  Naming a child as a member of the LLC, with a proper buy sell agreement in the event of your death, or having a personal trust as a member of the LLC which conveys your interest in the LLC to your children upon your death is an effective way to transfer assets and avoid probate.

If you haven’t done so already, it is time to take a look at your business and make sure both your business and your personal assets are protected.

This article has been written for informational purposes only and does not establish an attorney/client relationship. This information may not apply to your specific legal situation.  Please consult an attorney to discuss your specific legal needs.