In today’s society, risks of all sorts exist, not just for business owners but for anyone with a heartbeat. An LLC offers asset protection from two directions.
- If a builder is operating as a sole proprietor, he is liable personally for any claims against his building business. The owner of rental property in their own name is also exposed. If a claim is made by a renter or customer and the property or business is within the LLC, the injured party must sue the LLC, not the individual running it, nor the owners. This means that should someone prevail and obtain a judgment against an LLC, the individuals involved are not personally liable. There are some exceptions, but this is a discussion for the individual and his/her attorney. It is rare but nothing is bulletproof.
- The LLC provides protection from another direction. If a member of an LLC were to be sued for a traffic accident, or anything else, the assets inside an LLC are not attachable. Further, a judgment creditor may not grab your LLC membership units but may only pace a “charging order against them”. A charging order only allows a creditor to capture distributions that are paid to that member – assuming they know when and to what bank account into which that distribution is paid. Proper LLC operating agreements do not allow a change in ownership of the membership units without the consent of all the other members and the managers. An investor can put cash, stocks, live animals or anything else inside an LLC to protect it against confiscation by some stranger.
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