Residents of Virginia who want to go into business for themselves should form a limited liability company. This entity choice can protect them in some situations where they might otherwise be at risk.
A properly formed LLC insulates the owners of the business from having everything they own at risk in the event of a dispute. However, business owners should understand the limits of an LLC’s protection.
Individuals are still responsible for their own actions
Owning an LLC does not mean that a business owner can disavow his or her own actions. For example, lenders often get personal guarantees on leases. They may also require personal property or real estate as collateral. Owning an LLC would not protect these assets. Owners who also actively work in their own business may still be liable for their own actions in the course of that employment.
However, the protection an LLC affords matters a great deal in many other scenarios. For example, the conduct of another partner or employee, or product liability for items sold by the business, would be areas where the LLC would limit the owner’s exposure.
LLC records must be carefully kept
If you wind up in a dispute, the opposing lawyers will often attempt to “pierce the corporate veil.” To do this, they will attempt to demonstrate that you operated your business as an “alter ego,” rather than a true business. Failure to keep records and failure to keep personal funds separate and distinct from company funds are two ways this is often accomplished. Avoid this fate by keeping meticulous records and doing proper bookkeeping.
Establishing a business correctly as an LLC requires some work and guidance, especially if multiple partners are participating. Ensure that you meet your objectives and everyone receives proper compensation for their contribution to the business by taking the time to have your corporate entity created properly.