Limited Liability Protection is not always granted to protect your assets from third-party creditors even if there is a validly formed LLC.
Here are some additional steps that you can take to ensure your asset liability protection.
Proper Organization of the LLC
In order to properly form a LLC, you must first file an Articles of Organization with the Secretary of State and receive a Certificate of Existence. While some think the Articles of Organization can be easily attained by filling out a questionnaire online, this is not a safe and efficient way to protect your assets.
CAUTION: Consult an Experienced Corporate Formation Lawyer to achieve proper formation and asset protection.
To preserve your limited liability protection while forming the Articles of Organization you will need a Federal Tax Identification Number, a separate bank account specifically for the LLC, and to ensure you keep your personal and business affairs separate.
If you do not have all of these things the court will not protect your assets, such as your home or bank accounts, against creditors from a lawsuit. The first two are simple, however the last requirement will require additional steps.
Separating Business Affairs from Personal Affairs with an Operating Agreement
To ensure you are perceived as an agent of the corporation, and to preserve asset protection, you must show you are keeping your business affairs and personal affairs separate. One of the best pieces of evidence to present to the court is an Operating Agreement.
Think about it, if someone asks you how you run your business or the structure of the business, you should be able to present to them a written document that outlines those features. This would be the operating agreement. An Operating Agreement is essentially a contract that shows the structure of the organization.
If you do not have an operating agreement, your state’s default rules will outline the structure of your business. While this may not be the worst scenario, the default rules are generic and can often generate unsatisfying results.
Additionally, some banks require an operating agreement to set up a bank account.
When it comes to protecting your business, you do not want to cut corners and hurt yourself in the long run. Anything worth doing is worth doing right . Protect your home, bank accounts, and other important assets by consulting an experienced corporate attorney before filing a single member LLC.