Asset Protection: Overview

Asset Protection: Overview

The main reason for having a limited liability company (LLC) is to limit liability. Because the asset protection advantages of an LLC are so much greater than many other entities and the fees and paperwork typically lower, the LLC is the entity of choice for many businesses.

Corporate-type­ Protection

One of the great things about the LLC is that is offers asset protection much like a corporation. A corporation protects its owners from liability in that the shareholders are protected from the debts and liabilities of the business. If you own stock in General Motors, you will not be liable if they default on their bonds or if someone sues General Motors for defective cars and wins billions of dollars.

This same type of protection is available to you if you own a corporation (S corporation or C corporation) or an LLC. If the company is liable for something (and you did not personally cause it), then you as the shareholder or member will, in most cases, not be liable.

This same type of protection is available to you if you own an corporation (S corporation or C corporation) or an LLC. If the company is liable for something (and you did not personally cause it) then you as the shareholder or member will in most cases not be liable.

Limited Liability Protection

With an LLC you get an additional type of asset protection not afforded to corporations. Under most state’s laws, if you do something personally that makes you liable—you get into an auto accident and owe a lot of money—the creditor cannot take your LLC assets away from you. What the law says is that your creditor can only get a charging order against your interest. This means that he or she cannot take ownership of your interest in the LLC or liquidate the assets of the LLC. The laws regarding charging orders vary by state and may not apply to single member LLCs.