What an LLC Protects Against
An LLC protects the owner’s personal assets from most claims against the business. However, an LLC does not protect against intellectual property infringement or federal crimes. The liability protections also do not apply to wrongful termination lawsuits or similar employment claims. If a creditor sues an LLC owner over a personal debt, the company assets should be out of reach. With an LLC, only the company is liable for its debts and liabilities, not the owners or managers. This feature is called "limited liability."
Steps to Form an LLC
To form an LLC, you need to follow these steps:
- Choose a business name and registered agent.
- File formation documents and create an operating agreement.
- Get an EIN and set up business licenses and permits.
An LLC separates personal assets from business assets and debts. If the business struggles financially or faces lawsuits, your home, savings, and personal belongings stay protected. Creditors can’t seize them to settle business matters.
Making Money with an LLC
To make money with an LLC, you need to:
- Formally register it.
- Arrange financing and accounting.
- Market products/services and deliver consistent quality and value.
Tax Treatment of LLCs
LLCs offer flexibility in management structure and tax options. Profits pass directly to owners’ personal tax returns. LLCs can choose corporate tax status but may then face "double taxation" at corporate and personal levels. The IRS treats single-owner LLCs like sole proprietorships for taxes. The owner reports LLC profits/losses on a personal return. Multi-owner LLCs file partnership or corporate returns.
LLC Costs and Regulations
A limited liability company (LLC) protects personal assets but does not protect against wrongful termination lawsuits or similar employment claims. Members are not personally liable for company debts and obligations, but LLCs can be expensive to form and maintain. The main LLC cost is the state filing fee of $40-$500. LLCs offer hybrid features of corporations and partnerships. Setting up an LLC shields personal assets from business debts and lawsuits. Members manage LLCs jointly, which can lead to conflicts.
Exposed Personal Assets
Forming an LLC provides limited liability protection, safeguarding personal assets from the actions of other LLC members. There are situations where an LLC does not protect you from personal liability. In general, there are two ways that your personal assets can become exposed even though you operate your business as an LLC.