What Does An LLC Protect You From?
Operating a business can be a risky and expensive proposition. One of the primary downsides of running your own company is that you can incur a lot of debt as you try to grow and expand. For this reason and for general legal protection, a lot of people like to form a limited liability company (LLC) to minimize their risk involved. However, how much protection does an LLC really offer? In this article, we’re going to look at various elements to consider, as well as go over how to apply for an LLC.
Single vs. Multi-Member LLCs
One of the fundamental components of an LLC is how many members it has. Because of the way that this entity type is structured, it dissolves if any member decides to leave the company.
When looking at protection, however, it makes a huge difference if the LLC has only one member or not. Individuals can create an LLC to limit their liability, but it doesn’t offer the same level of protection as a multi-member entity.
The reasoning behind this is that if there are multiple people involved in the operation, they should not be held liable if one person does something that impacts the company. However, if you are the only operator, that doesn’t apply anymore.
What Liability is Limited with an LLC?
Overall, forming an LLC protects you from liability against any financial issues involved with the company. For example, if your business goes bankrupt, creditors can’t come after you personally to collect money owed.
For the most part, LLCs protect members from-
- Actions of other members
- Actions of employees or operators
- Debt accrued by the company
However, one area where you’re not covered is your own actions. Even in a multi-member LLC, if you do something that affects the business (i.e., negligence, failure to pay taxes, etc.), you are still held responsible for those actions. The other members, however, are not.
Bottom Line
Overall, forming an LLC does offer a lot of protection, but it does vary slightly by state (LLCs are not recognized federally). You can apply online to find out any additional information about your liability within an LLC.
