ComplianceLegalMarch 05, 2020

How does a Delaware LLC help protect an asset

When you create a Delaware LLC, you establish a business entity that is legally separate from its members (owners). That means that, with some careful planning and maintenance, the members are not personally liable for debts of the LLC, nor are they legally responsible in the case of a lawsuit brought against the LLC.

In circumstances where there is unpaid debt, creditors can go after an LLC's assets, including company bank accounts, but personal assets such as homes and cars are off limits. In fact, a Delaware's LLC owners risk only what that they have actually put into the business as only LLC assets are used to pay off business debts.

If an LLC is sued and found to be responsible, personal assets are shielded, as long as members are not personally involved in activities, such as fraud, that can harm outside parties.

While Delaware allows for a verbal agreement, a written one can be presented as needed to requesting authorities. It also prevents misunderstandings between members. A template of this document can be found in our Corporate Kit.

Opening a bank account in the name of the LLC to keep business and member financial records separate. Failing to do so will result in "commingling of assets", which makes it hard to separate what belongs to the company and what belongs to its members, leaving personal assets vulnerable and possibly fair game to creditors.

Procuring a good liability insurance policy to protect the business as well as the members in the case of a lawsuit.

Avoiding Personal Guarantee Loans whenever possible. Personal Guarantee Loans are a promise that an individual will cover a debt when an LLC can't. Instead of signing for this type of loan, members can look to establish credit in a company's name.

It's easy to see why forming a Delaware LLC is a favorable option these days. By taking additional steps, the members of the LLC can enjoy personal liability protection. The support of accountant and attorney are recommended to achieve these goals.

Ready to form a Delaware LLC? It's easy to get started with our online order process.