How Do LLCs Help Protect Entrepreneurs Personal Assets

Entrepreneurs Personal Assets

Small businesses are the lifeblood of the economy. They make up 99.9% of all United States businesses, with 33.2 million currently active in the country.

A limited liability company (LLC) is one of the most popular ways to structure your small business. When a business is formed as an LLC, it is treated as a separate entity from its owner in terms of legal obligation. This means that entrepreneurs have minimal personal risk when it comes to long-term legal and financial endeavors done in the name of the business.

LLCs also offer flexible structures in the sense that more than one owner can share the LLC while retaining their separate distinctions. Every member is also able to contribute to the daily operations of the business. Most importantly, the popularity of an LLC structure is how it protects the personal assets of the entrepreneur in many ways.

It Sets A Limit To Your Personal Liability

As you can gather from the name itself, an LLC puts a limit on your personal liability. This is because of its more flexible operational structure that allows every member to minimize risk. The company itself is treated as an individual entity, so any conducted business and contracts cannot be legally tied to the members or owners down the line.

This protective measure can generally be expected throughout the United States but there are even more benefits depending on where you register and operate. For instance, forming an LLC in Kansas also gives you provisions for torts. Under the Kansas Torts Claims Act, you can limit liability to $500,000 for any number of claims. Furthermore, this will only be charged to the business entity itself and not taken from the personal assets of the owner. If there is a claim against the business, it cannot personally be dealt towards the member.

On the other hand, there are certain states that are not as promising to form an LLC – New York, for instance, has some of the highest year-one costs at $1,985. The environment is also not one of the most business-friendly.

It Protects You From Lawsuits

If you have any lawsuits filed against your company due to injury, debt, or other legal obligations, you can usually expect that it will only be directed toward the business entity itself. If there are creditors pursuing debts incurred by the business, they cannot use the owner or member’s personal assets to satisfy the amount.

If you are seeking out a Retail Space for Rent, you have the benefit of knowing that the property taxes will be more forgiving and that you are not at as high risk in terms of financial obligation. Although you should still make sure that you pay your rent efficiently, you cannot be personally liable for missed payments or breached leases in the name of your LLC. Landlords will still, of course, be allowed to sue the LLC itself.

It Provides A Clear Separation of Finances

It’s always a good idea to have a solid separation between business and personal finance. This is much easier to accomplish when you conduct business with an LLC structure. Having clear financial records can prevent a lot of potential issues while you manage operations.

This is particularly important if the LLC has more than one member. Having multiple owners and employees increases your risk of suffering from fraud. Statistics from the Nations Global Study on Fraud and Abuse reveal that small businesses rank highest in occupational fraud frequency at 42%. Having a dedicated trail for business assets makes it easier to spot anomalies and protect your personal assets in the event that you do miss the warning signs.

It Offers Good Tax Benefits

LLCs enjoy great taxation, which is very helpful for entrepreneurs who are looking to grow their income and preserve their personal assets. For starters, many states have state-specific tax benefits. For example, Delaware and Nevada are considered the most tax-friendly states for LLCs because they don’t require personal income tax and they enjoy pass-through taxation.

This also makes things manageable for businesses that require more funding in challenging times. There are many Low-Income Loans for a Tight Budget that can also apply to LLCs if you do the paperwork.

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