Business owners work far too hard to establish and grow their operations, only to have their hard work undercut in court. No matter how diligent you may be, all it takes is one lawsuit to derail everything you built. Despite the multitude of demands on your time, you just can’t afford to leave your assets unprotected. At Kennelly Business Law, we partner with clients to review operations and identify potential gaps and weaknesses when it comes to liability. One of the more significant tools we have used to protect our clients is the use of limited liability corporations or LLC’s. An LLC is quite simply a formal business entity created for a specific purpose. They can be used as an outgrowth of an existing business, as the operating entity of a small business or as a tool for real estate, among other uses. Here are some simple tips to keep in mind if you’re considering developing an asset protection strategy that includes LLC’s:
- Separate assets: Developing multiple LLC’s allows for liability to be limited to the assets in that particular LLC. For example, if you’re working on three separate construction projects, it might make sense to consider creating a single LLC for each of the projects. That way, if some unforeseen circumstance takes place with one project, it won’t negatively impact the other two.
- Real Estate Advantages: It is common to own real estate in an LLC, separate from the operating entity. In this case, the LLC owning the real estate holding leases the property to the operating entity, separating risk and reducing the chance of larger litigation. This also provides an avenue to sell the business (operating entity) and retain the real estate assets to provide recurring revenue after the sale.
- Holding Company with Multiple LLCs: In some cases, it can be wise to establish a holding company to be used as the owner of the multiple LLC’s. In this arrangement, the LLCs are separate and the holding company provides an extra level of protection. This approach is much preferred to maintaining assets in one LLC, where they could all be on the chopping block if a liability-producing event occurs.
Any of these tips and strategies can be complex, but are very effective at protecting assets. Of course, none of these tactics should be undertaken without consulting an attorney and an accountant to avoid adverse tax consequences. Contact our asset protection lead Chris Kennelly at [email protected] or any of our team members at 701.478.4900 today to learn more!