Are LLC's as iron clad in protecting you as people suggest?

Question

I hear you should put your properties under an LLC to protect yourself, your savings & your home from anything that may arise from a lawsuit associated with one of your properties, but I wonder if that is just something people stated repeating to others without knowing if it's factual. I've heard a good lawyer could find holes in that setup and wipe you clean.

Jay Hinrichs · Answer

LLC are more for tax situations than asset protection..  as an alternative to corporations they are easier to form and maintain and they allow un even distributions.. for asset protection nothing protects you if your personally guaranteeing loans for your deals or are out there and doing business in the public realm.. they will sue you and your LLC.. first thing they do .. figure out who owns the LLC and sue them as well.   Not for a minute is LLC asset protection on its face

Chuck H. · Answer

Yes, they work. However, you have to take steps to make it harder to "pierce the corporate veil."

1. The LLC should have its own bank account. Do not mingle personal and LLC funds and expenses.

2. The LLC should have a general commercial liability (GCL) policy. They are cheap and protects the LLC from a lawsuit.

3. Have annual meetings (even if with yourself) in which you record minutes, submit all necessary annual paperwork to the state, written policies, etc.

Essentially conduct the LLC like a business and not simply an extension of yourself. If a lawsuit arises and the judgment is higher than your LLC's assets (cash, the house, etc), their lawyer is going to try to prove that your LLC is not an LLC, but simply you. This is "piercing the corporate veil" in which they will go after your personal assets.

Natalie Kolodij · Answer

Yep. Sure can.

My two cents from the tax side ....

A. It's important to keep business/personal completely separate to show you're not just treating it as an extension of your bank account. And I would say at least 75% of the books I've reviewed in my years in tax have some personal expenses recorded in there.

B. (I'm not an attorney so I can't confirm this part) but I listened to an attorney speak who mentioned charging orders. Basically if your assets are in an LLC and YOU personally get sued. A judge can force you to disperse your assets from the LLC to yourself to meet the court order.

Do I think you shouldn't have LLCs? No absolutely not.

Like anything else they're a tool and can help. Should you not wear a seat belt just because you can still get injured in a  wreck wearing one? No. but it can definitely mitigate the extent of the injury.

Jenna Zebrowski · Answer

Nothing is absolutely certain, but a business entity, properly formed and maintained, can assist in insulating your assets from liability. Even if you maintain the entity, observe the formalities and  don't co-mingle assets, the entity can be legally disregarded if there's blatant misbehavior, such as fraud or non-payment of taxes.  So it's not the actions of the other party's lawyer, but your own, that will dictate how good the entity protection is. The correct insurance won't protect you from liability, but it could pay for damages or a legal defense, if you need one.

Jenna Zebrowski

The Law Office of Jenna Zebrowski, PLLC

"Investor-Focused, Series LLC Friendly, Commercial Real Estate Savvy"

Stanley Bronstein · Answer

Nothing in life is 100% certain. One major aspect about asset protection is to create barriers to entry. The harder you make it for someone to reach your assets, the less likely they are to successfully do so.

Dennis M. · Answer

No . However it’s still better to have more protections In Place . Additionally An umbrella policy is also a good idea regardless

Are LLC's as iron clad in protecting you as people suggest?

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