LLC Asset Protection 2024: What Should You Know?
Reviewed by Kristina Knight, Journalist , BA
The article is checked by our editorial team, Which includes entrepreneurs who are painfully aware of how overwhelming and challenging it is to start a business for the first time.
You might have started a limited liability company to help protect your personal assets from business creditors. However, as a business owner, you must also do all possible to protect the assets owned by the business entity.
That’s why we created this guide. It covers the top strategies for keeping your personal property and business funds safe from your LLC’s creditors. Keep reading to learn more.
Read more: How To Start A Business In 10 Steps: Tips & Guide 2024
What Is An LLC (Limited Liability Company)?
The first thing we should start with is what limited liability companies are in relation to how they protect assets. An LLC is a business entity, just like an S corporation or sole proprietorship. It’s designed to protect your personal assets from business creditors in the event of business liabilities leading to a judgment creditor in bankruptcy court.
As an LLC owner, bankruptcy courts won’t be able to go after your primary residence or personal assets under state law. Other members of the LLC can’t be held liable either, so your general partner will also be safe from business losses impacting their personal financial goals and assets.
Read more: How To Start An LLC In 2024: Free Guide
What Is Limited Liability Protection?
The concept of limited liability protection is that your personal assets and your business assets are totally separated. You don’t have personal liability in the event of business failure as an LLC owner.
That’s why so many people decide to create a separate legal entity for their business, as it can help protect the owner’s personal assets from a bankruptcy trustee or fraudulent transfer that creates business debts and legal liabilities.
Read more: Benefits Of An LLC 2024: Free Guide
LLC Asset Protection Strategies
LLC owners can’t be held personally liable. Even if business bank accounts get drained, personal accounts can’t be touched – unlike a sole proprietorship. Protecting assets owned by the business or limited partnership can be more challenging. But there are a few ways to do it. Here are some asset protection strategies you may want to try to protect your limited partnership interests while also maintaining the separate legal entity of the LLC and protecting your personal assets.
Get LLC Insurance
One option is to purchase LLC insurance. This helps to protect your limited liability company from different types of potential legal issues. For example, if someone is hurt by your product or service, this type of insurance may offer liability protection so your business expenses and finances aren’t impacted. Choosing the proper insurance plan will be important.
Your business will have to pay a monthly or annual premium to protect assets this way. But one of the most straightforward and secure asset protection strategies for vulnerable capital and assets that you need to protect from an executory contract, general rule, or charging order.
Maintain Your LLC as an Independent Entity
Maintaining your LLC as an independent trustee and LLC member is also important. It can be financially devastating under state law if you mingle your debts incurred through a business like rental properties with your personal assets.
That’s why your operating agreement should specifically dictate this separation. Doing so will help your LLC protect the funds it needs for day-to-day operations while also keeping personal creditors off your back.
Some states allow you to create an LLC without providing your personal name or by using an alter ego. If you can use an alter ego in your state, then it could be worth doing so, as this could help you establish more separation between your business and personal assets. Just make sure your primary residence isn’t listed in the business documents either.
Establish LLC Credit
Another underrated asset protection strategy is establishing credit through your LLC. This doesn’t help you protect your personal assets or avoid personal liability. But it can give your LLC a source of extra funding when it needs it. That could help your business continue meeting its obligations in the event that a charging order is issued against it.
Having a business credit account is another way to separate your personal assets from the LLC as well. When you want credit, you will be able to obtain it through the business rather than through your personal assets. That’s a big reason why this tactic belongs in your list of asset protection strategies.
Minimize Capital Held By the Business
It’s also not a bad idea to minimize the amount of capital that your business holds. Doing so will minimize what creditors have to go after if a charging order is ever issued.
One method is to disperse earnings often so that the company has less assets on hand at any particular moment. You might also want to consider investing your assets in various things. But you will need to look to your operating agreement and management rights to utilize this form of asset protection.
Asset Protection Trusts
Asset protection trusts can be very helpful in avoiding being held personally liable from income tax issues and other debt problems with your business. They shield your assets from personal creditors and creditor voting rights.
But trust assets may have some limitations on them. For example, it could be harder to sell a home that’s in a trust or change the business name of a company that has trust assets. But these rules vary from state to state, so it will be important to research the rules on assets in trusts in the state where your LLC business is located if you want to use this asset protection strategy.
Top 2 LLC Services
There are no personal guarantees when it comes to asset protection. But forming an LLC and keeping its finances separate from your own is about as close as you can get to personally guaranteed individual protection.
You can choose a business name and form an LLC on your own to start protecting your assets and avoiding double taxation for business income. Or you can hire a service to help you out with the process and to provide further guidance on the topic of protecting your business and personal assets. Here are two of our favorite options for this.
| ZenBusiness | Northwest Registered Agent | |
| Award | Best Overall | Most Affordable |
| Price | $0 – $299 + state filing | $0 – $225 + state filing fees |
| Rating | 4,8/5 | 4,7/5 |
| Detail | Read Review | Read Review |
| Link |
ZenBusiness
ZenBusiness is an industry-leading LLC formation service that also helps companies out with taxation, growth, accounting, and other key business processes. It’s a good partner to have as you look to protect your assets.
ZenBusiness stands out from the competition by offering exceptional customer service and by offering a wide variety of LLC support services to choose from. The company also has after-hours help available so you can get the assistance your company needs with protecting its assets even if you discover a need for assistance outside of standard operating hours.
Northwest Registered Agent
Northwest is a company that’s very similar to ZenBusiness. They also are an industry-leading LLC formation service that can help with other business tasks and processes as well. They don’t offer any personal guarantee on asset protection. But no companies do that.
The difference between Northwest and ZenBusiness is that Northwest is slightly more affordable. But it doesn’t offer quite as many business services as ZenBusiness and its support hours aren’t as extensive. So if you’re choosing between these two companies it will likely come down to whether you value after-hours assistance and the extra services ZenBusiness offers or the affordability of Northwest Registered Agent.
Read more: Best LLC Services 2024 – Top LLC Formation Services
Conclusion
The bottom line is that LLCs make it much easier to protect your personal assets from seizure in the event that your company faces future financial difficulties. But there are also steps you can take to secure your company’s assets as well. Purchasing insurance and setting up asset protection trusts are two key examples of this.
However you decide to proceed with your asset protection strategy moving forward, we wish you the best of luck with it.
Read more: Best State To Form An LLC In 2024
Frequently Asked Questions (FAQs)
Yes, LLCs protect your personal assets from creditors who may come after your business if it faces future financial challenges. But you need to maintain that separation in bank accounts, how you pay for business expenses and assets. Otherwise, a creditor may be able to argue that your personal assets are actually part of the broader LLC business and they could be at risk.
Protecting the assets your LLC owns is more challenging than protecting your personal assets. But you can do it by using a combination of several strategies. For example, you can buy business insurance to avoid LLC liability for product and service-related lawsuits. You can also focus on minimizing the capital that your LLC holds in general or start a trust to hold your assets.
Asset protection is a complicated subject. The answers that you want can vary based on the state that you’re located in, the nature of your business, and the types of debt issues that you experience.
Seeking out personalized advice on the subject is never a bad idea. You can do so by reaching out to a business lawyer in your area for a consultation. You might also be able to get some support online by forming a partnership with an LLC formation and support company like ZenBusiness or Northwest Registered Agent.
Yes, an LLC is a popular business structure for individuals who run a business and are interested in protecting their personal assets. It provides greater levels of protection by far than sole proprietorships and often corporations. If you run a business and want to protect your personal finances while doing so, an LLC may be the way to go.
Yes, there are no extra steps that you need to take to protect your personal assets after you form the LLC. Just make sure that you’re not co-mingling your business and personal finances throughout the operation of your business. Otherwise, creditors may be able to come after your personal finances.
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