When commencing a business, you have to wear many hats as it is not only about building a brick-and-mortar shop and then putting signage on a busy street. Running a business and making it successful is not an easy task, and this is why 96% of small businesses are not able to become successful. We are not providing you such stats to make you feel demotivated, but we want to make you aware of involvement in creating a successful business.
But while commencing a business, you should not always choose an easy path as in such cases; the comfort might cost you success and growth. Well, the same thing can be said about corporate structure.
Choosing LLC as a corporate structure for your firm might make things complicated, especially in comparison to sole proprietorship and partnership, but there are many advantages of LLC. This is one of the main reasons, so many businesses stick with the LLC corporate structure and accept the complexity with alacrity.
But does LLC help in protecting your business and personal assets? Let’s find out through this blog post.
The purpose of LLC
An LLC is a type of business that has no relation with the personal finance of the business owner. All the funds move through the LLC from the business to the owner. Then the owner of the company shows the earnings to the IRS as income. This is similar to reporting to the IRS when you work for another company.
But how does LLC keep you safe? An LLC acts as a protective wall between the owner and the business. An LLC can help you protect your cars, homes, and bank accounts from being affected when someone sues your firm. So, forming an LLC in New York City can help you stay safe in terms of personal finances.
Protecting personal assets
If you are looking for a way to reduce personal liability in all business matters, you need to understand the exception to the limited liability given by your LLC.
If you hurt a person, you are going to be held liable for it, and there is no way LLC is going to protect you in such a situation since LLC never provides any safety against harm done on the personal level.
Moreover, if you are going to do something illicit or intentionally, then even, in this case, you are going to be held personally responsible, even if you have a firm with the LLC corporate structure.
Even if you are going to show LLC as a part of your personal finance life, the existence of the LLC will be directly rejected. In addition to this, if the court finds out that even with an LLC business structure, the personal assets are the ones with the business assets, you can lose your home, car, and even all your savings if someone sues your business.
Keeping the LLC separate
Here are some tips that you can use for keeping the LLC separate
- While dealing with any type of business transaction, getting the federal employer identification number becomes essential. If you are going to use the personal Social Security number for all the business transactions, then there is no way the LLC is going to save your assets in the case of a lawsuit against your business.
- To give an identity to your LLC, you should first come up with a formal operating agreement. In some cases, you might need to prove that your LLC is real, and in such a situation, a formal operating agreement dated and signed by the owner can show that you have a well-thought-out plan.
- Another important thing that you must do is to ensure that your finance and LLC are separate. The LLC must have its separate bank account, and it should have enough money required to deal with the firm’s daily operations. You should never take payment from your clients and then deposit them in your bank account. Make a habit of depositing all the money in the LLC account only.
- Never try to misrepresent the state of your LLC to your creditors, vendors, clients, or any other firm. Building a genuine credit history for your firm might take time and effort, but the benefits of genuine credit history can fuel the firm’s growth rate. Never lean on personal finance for building a relationship with vendors, instead work on the LLC credit history.
Forming an LLC in New York City might make things a little bit complicated for you, but there are many advantages of an LLC as well. But even after forming an LLC in New York City, a few things must be kept in mind.