Limited liability is one of the biggest benefits of investing in publicly traded companies. While a shareholder can fully participate in the growth of a company, his liability is limited to the amount of investment in the company, even if it subsequently goes bankrupt and has remaining debts. I am buying real estate in a partnership and I am looking for information on whether an LLC is legally recommended or not and a tax benefit for both partners. Asset Protection LLC`s strategies such as separating business and personal finances and maintaining proper insurance can help protect your personal assets from business creditors. While there is no 100% protection, planning ahead can help reduce your risk. LLC legal protection includes personal liability protection offered by a limited liability company, a type of business entity that is legally separate from its owner(s) (called members). Limited liability protection means that your personal assets cannot be seized to pay off the LLC`s debts and financial obligations. An LLC operates as a flow-through tax entity, meaning members report profits and losses on their individual tax returns, just like with a partnership or sole proprietorship. There are two main types of liability to consider: tort and contract. Do you think an LLC might be the best business structure for your next real estate business? While an LLC offers many benefits, you should not overlook the potential risks of personal liability. LLC rules vary from state to state. So, be sure to research your jurisdiction. Contact your lawyer and financial expert to develop strategies to protect your LLC and personal assets.
To avoid any chance of alter ego liability, it is important to completely separate the LLC`s records and finances from the owners` personal finances. The LLC should have its own bank account and credit cards. Contracts, invoices, purchase orders and other important documents must always bear the name of the LLC and be signed on behalf of the LLC. Tax Benefits The profits of an LLC are taxed on a member`s personal tax return (Form 1040), which means you avoid “double taxation” of a corporation. Profits are taxed only once at your personal income tax rate. This is sometimes referred to as “intermediate taxation” and can provide a significant financial benefit. An LLC owner can also deduct operating expenses, business expenses, and equipment depreciation from an LLC`s tax liability. Let`s face it. Despite our efforts, every business carries risks. While insurance plays a role in protecting our assets, limited liability does a lot of work to protect business owners.
The legal system provides essential tools to reduce risk for those starting and starting businesses. Not all types of businesses offer the same level of protection. Some offer solid protection. Other types do not protect at all. If an LLC member commits an illegal act that causes injury by acting as an agent or employee of the LLC, it is not only the member`s personal property that could be attacked by the victim of the injury. The victim could also sue the LLC`s assets under a theory of vicarious liability (also known as the defendant`s superior liability) for the actions of its agent. Tort liability arises from your liability in tort to another person. I am sure you are familiar with negligence. The classic definition of negligence is a failure to act with the care that a reasonable person would exercise in the same circumstances. Damages resulting from negligence are tortious liability.
Your company will protect your personal assets from tort liability as long as you are not the person who committed the crime (or in other situations – see below). If your employee or agent commits a crime, that employee or agent (and sometimes the Company) may be held liable. However, you are still responsible for your own crime. Environmental liability is a common issue when buying real estate, and using an LLC for a sale or purchase does not eliminate these concerns. The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) imposes strict joint liability for clean-up costs on former and current owners and operators of facilities where hazardous materials have been released. There are a few other exceptions. As mentioned above, you are not protected from debt collection agencies when you take out the personal guarantee for a loan. In this case, you have already given the lender permission to come after your personal property if the loan is not repaid according to the terms. If you sign a contract as yourself and not as an agent of the company, you become personally liable and are no longer protected by the LLC. Finally, if your LLC doesn`t comply with your state`s paperwork and record laws, you may not have full protection. At the end of the day, there are risks in business as there are in life.
When properly incorporated and managed, a company, limited liability company, corporation or other legal entity can help protect you from some of your business risks and ensure that this is an acceptable risk in relation to the upward trend of your business. Paying attention to these fundamental considerations increases the likelihood that the benefits and objectives of limited liability will be preserved. Without limited liability, the property of the owners is at risk.