What does Limited Liability Protection mean, and how do I get it for my business?

Limited liability means that your personal assets are protected from your business liabilities.

LLC

Limited Liability Company
$ 129
  • Limited Liability Protection
  • Perpetual Existence
  • Pass-Through Taxation
  • Flexible Management
  • Unlimited Members
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If the business entity is in compliance and up to date with the state(s), then the ownership can expect certain limitations on any claims brought against the business by a third party.

Limited liability protection is by no means all-encompassing, nor is it guaranteed just by the act of filing Articles of Organization with the Secretary of State.

First and foremost, to maintain limited liability protection and convince a potential arbiter or judge that your business provides that type of shielding, a few standards need to be met:

  • The entity must be in “good standing”.

That means all annual reports filed on time, all tax returns up to date, and any other formalities are current with the state. Registered Agent service is a good way to manage this.

  • There must be a clear line between personal and business activity.

That means no shared bank accounts with the owners, no contracts between individual representatives of the business, and so on.

  • There need to be clear records of any transactions.

Especially for any loans to the business and disbursements from the business to members/owners.

This applies to LLC’s as well, even though the record keeping requirements are not as stringent as they are for Corps. 

Assuming all of that is in order, liability protection then extends to your personal assets – with a few major caveats:
 
  • It does not cover claims of negligence or fraud, and
  • It does not cover ownership that has made personal guarantees, or executed an agreement not on behalf of the business.
If your business can meet all of these requirements, and most can, then you’ll be able to enjoy limited liability protection for your personal assets.

Common Limited Liability Protection Questions

LLC, S-Corp, C-Corp, Nonprofit, and some Limited Partnership entities are generally eligible for limited liability protection. 

The protection definitely is subject to certain rules and circumstances, and gets a bit murkier when it comes to Nonprofit entities. 

Always consult with a legal professional when making important decisions like this regarding your business.

It’s not uncommon for banks and financial institutions to require personal guarantees to secure a loan, especially for new businesses.

The personal guarantee does, in most cases, supersede any limitation of liability provided by the business entity.

Consult with legal, financial, and tax professionals before making any loan decisions.

Generally, you can check the status with the Secretary of State for a small fee. Official records and Certificates of Good Standing can generally be ordered for a fee as well.

Check with your Secretary of State, or inquire with us if you subscribe to Registered Agent service through easyllcfile.com.

Free Business Name Search

This is a complimentary free name search, we’ll respond via email with any findings. This doesn’t initiate or replace a corporate filing order. 

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