Starting a small business? We all know its a good idea to have liability protection, but how do you know if an LLC is right for you? What can an LLC offer you that an umbrella insurance policy cannot? Below are some of the main benefits of starting your own LLC.
Protection from Personal Liability
Without an LLC, any action your company takes is also an action you take. Regardless of whether or not you have an umbrella insurance policy as far as your liability is concerned you and your company are the same entity. In contrast, an LLC protects your personal assets from claims made against your company.
So how does this work? Say one of your employees is severely injured during a company sponsored team building activity. The employee files a claim to recover $600,000 in damages. Your business is still in its infancy, and will go bankrupt if it has to pay more than $200,000.
Assuming the employee is granted the $600,000 judgement, an LLC prevents the employee from going after your personal assets like your car, house, or a retirement account to pay for the remaining $400,000. Conversely, an umbrella policy will pay only up to your policy limit (minus your deductible). If your liability amount is greater than your policy limit, your personal assets can be sought after to secure the balance of your debt.
Overall, the LLC offers one more layer of protection between business and personal life, and can give you the peace of mind that your personal assets are protected from any unforeseen business liability.
Your Professional Identity
As you develop your business, creating name brand and recognition are key. For that reason alone, you may prefer to do business in your company’s name rather than yours individually. The LLC offers you this option.
For example, say you own rental properties, and you have tenants paying you monthly. In an effort to have a more professional image, you may prefer to have tenants be able to pay ABC Property Management, LLC directly instead of writing out a check each month to Jane Smith.
Small Cost for Big Benefits
As you’ve been reading you may be thinking, “that all sounds great, but isn’t that going to cost an arm and a leg?” The short answer, no. While there are some costs involved in starting and operating an LLC, it is relatively easy (and therefore inexpensive) to set up. When balancing the benefits of liability protection and brand recognition against start up and operating costs, the benefits easily out weight costs.
If you have questions about business planning or want to form your own LLC, one of our business planning attorneys would be happy to assist you.