Once again, the late night television commercials promising to sell you an asset protecting LLC that simply takes care of all your problems… falls flat. In this case, we’re talking about business owners who buy an LLC package to shield personally liability, ‘protect assets’, and maintain privacy. You can’t always just hide behind an LLC.
There is no one-size fits all solution for asset protection, and limiting liability. It is a complicated area of the law, and as always, you should consult with a relevant attorney regarding your particular situation.
Maintaining Separation
In general, if your LLC has creditors (people or companies that have loaned money or assets to you) and they are considering holding you personally liable, they will look to see if you maintained separation between yourself and the LLC.
The question is: Does the LLC act as an entity that is independent from it’s founders/managers?
Who owns the bank account?
If you are using a personal bank account to handle transactions for the LLC, this could easily establish that there is not a separation between the LLC and you. Make sure to establish a separate bank account for your LLC and it’s funds. Get an EIN for your business, and set up the bank account using that.
Who uses the bank account?
Again, if you are depositing money from your personal account into a business account, or withdrawing from the business account to your personal account (or spending on personal items from your business account) this could establish poor separation between the LLC and yourself. Work with an advisor/attorney to set up “capital contributions” or other vehicles.
Who signed the contracts?
Believe it or not, how you sign contracts can also establish grounds for how well separated your LLC and you are. For example, if you own Premiere Highpoint Construction, LLC., consider signing as “Premiere Highpoint Construction, LLC, by John Doe, Managing Member.”
Who’s pretty face is that?
You may have to argue with your marketing vendor on this one. There are cases in which advertising materials can be used as evidence that your sole member LLC is you, rather than a separate entity. If John Doe runs an advertisement with his smiling face that talks about his expertise, that helps document that John Doe and the LLC are the same. A more conservative approach might be to use licensed stock photos of models, and speak about the company’s expertise.
If you plan to borrow for the sake of your business, or have any other reason to document a strong separation of liability, you should regularly consult with a business attorney or asset protection attorney.