How Does an LLC Provide Asset Protection and Why Do I Need One?

Confused about how does an LLC provide asset protection? Want to know why you need one? If so, then we got you covered. Read on to learn more!

Limited liability companies (LLCs) are a popular choice among business owners for a good reason. LLCs offer business owners limited personal liability, pass-through taxation, and flexibility in the management structure.

But did you know that LLCs also offer excellent asset protection?

If you’re looking for a way to safeguard your assets, an LLC might be the right choice. Here’s everything you need to know about asset protection with LLCs and why you need one:

What is Asset Protection?

Asset protection is the process of safeguarding your assets from creditors and lawsuits. Many different asset protection strategies are available, but choosing an LLC offers several advantages.

In addition to offering asset protection, LLCs are often called “asset protection devices” because they can effectively shield your assets from creditors.

How Does Asset Protection Work With LLCs?

Asset protection with LLCs works by creating a barrier between your personal assets and your business assets. When you set up an LLC, you create a separate legal entity for your business.

It means that your personal assets—like your home, car, and savings account are not at risk if your business is sued or contains debt. Only the assets belonging to the LLC are at risk.

Another way asset protection with LLCs works is by making it more difficult for creditors to reach your assets. Creditors must go through several hoops to attach liens to or seize assets belonging to an LLC.

And even if they successfully attach a lien or seize assets, the amount they can collect is usually limited to the value of the LLC’s assets — meaning your personal assets remain safe. This is sometimes referred to as “inside out” asset protection because the risk is quarantined inside the LLC, which protects assets outside the LLC.

Thinking about it the other way around, an LLC can also provide “outside in” asset protection, meaning you can stuff an LLC with assets you wish protected. For example, you could transfer a savings or investment account to an LLC and, if properly structured, as long as the savings or investments remain inside the LLC they would be protected from risks occurring outside the LLC, such as a vehicle accident.

Does an LLC Provide Asset Protection?

Yes! Many people choose to form LLCs to protect their assets from being seized if their business is sued, or to quarantine “hot” assets like rental property or investment real estate.

However, it is essential to remember that an LLC will only provide asset protection if properly structured and managed. For example, if the LLC is co-owned by spouses and not properly structured, creditors may be able to reach the assets of both spouses if one of them is sued.

The primary remedy in the event the owner of an LLC is sued is a “charging order” against the LLC, which allows the creditor to collect distributions made to the LLC owners. When the owner of the LLC controls the timing and amount of distributions from the LLC, this affords the owner great leverage. If properly structured, a creditor cannot compel a distribution, seize the LLC interest itself, or seize assets inside the LLC. (Channelside Services, LLC v. Chrysochoos Group, Inc.) The creditor generally has no voting rights (no control) and cannot access or inspect any books, records, or financial information of the LLC. Id. In addition, the creditor could be subject to “phantom income” on undistributed earnings of the LLC, so the owner of an LLC can make a charging order very expensive for a creditor!

What is an Asset Protection LLC Structure?

An LLC is a business structure that can own almost any business or investment. An asset protection LLC structure is a legal tool used to hold assets in a way that shields them from the claims of potential creditors.

An LLC offers its owners limited liability protection, which means that the owners are not personally liable for the debts and liabilities of the LLC.

A typical Asset Protection LLC structure will vary depending on the primary source of risk. For risks associated with a business or other “hot” asset like rental property, an Asset Protection LLC structure may be established by transferring the business or asset to an LLC to quarantine the risk to protect assets that reside outside the LLC. 

An owner may also choose to transfer “cold” assets such as savings and investments to an Asset Protection LLC structure to protect such assets from risks that reside outside the LLC, such as vehicular accidents.  For example, if a pet or animal escapes causing a vehicle accident resulting in liability to the owner, assets placed in an LLC would be protected if the LLC is properly structured. 

Asset Protection LLC Operating Agreement: Why Is It Important?

An Asset Protection LLC Operating Agreement is a legal document that outlines an LLC’s ownership and operating procedures.

This Operating Agreement can help protect your assets by specifying how the LLC will be managed in the event of a legal crisis, and what happens if one of the owners dies or becomes incapacitated.

An Asset Protection LLC Operating Agreement can also establish rules for how a creditor of a member will be handled, such as a discounted buyout for a divorcing spouse.

A good Asset Protection LLC Operating Agreement helps you to avoid potential conflicts among the owners and ensure that the LLC is operated in a way that protects your assets in the event of a legal crisis. 

An Operating Agreement is not required by law in Louisiana but is highly recommended. Click the button below to learn more.

Asset Protection with LLC VS Trust

When it comes to asset protection, there are a variety of different options to choose from. Two of the most popular choices are an LLC or a Trust.  An LLC and a Trust are different devices. One is not necessarily better than the other because they afford different types of protection. 

Choosing asset protection with LLC vs trust will depend on a number of factors Each option has its own advantages and disadvantages, so it’s important to carefully consider your needs before deciding.

Let’s take a closer look over both of them:

Asset Protection with LLC vs. Trust

Trust

  • LLCs offer great flexibility when it comes to asset protection. You can choose to have your LLC taxed as a corporation or partnership, which can help you minimize your tax liability.
  • Additionally, LLCs offer personal liability protection for their owners, meaning that your personal assets will be safe if the LLC is sued.
  • Setting up an LLC is easy with GeauxPlans, and asset protection is even stronger if coupled with a trust.
  • Trusts are often used for asset protection because they offer a high degree of protection if structured properly. All assets in a properly designed trust are protected from creditors and lawsuits, and the terms of the trust can be customized to fit your specific needs.
  • Trusts are also useful for estate planning purposes, making them a popular choice.
  • Trusts are not difficult to establish, especially with GeauxPlans.   Revocable Trusts do not provide Asset Protection, so you should consult with an experienced attorney whenever Asset Protection with a Trust is a goal.

Benefits of Having Asset Protection with LLC

Below, we have listed some of the key benefits that come with having asset protection with your LLC:

1.      Separate Personal Assets from Your Business Assets

Separating your personal assets from your business assets is important, or your personal assets will be subject to business risks. If you have an LLC, your personal assets will be protected from any debts or liabilities that your business incurs.

2.      Limited Liability Protection

An LLC offers limited liability protection. You will not be personally liable for any damages or debts if your LLC is sued.

The only exception is if you have personally guaranteed debt or have engaged in illegal activity. But other than that, your personal assets will be protected from any debts or liabilities of the LLC.

3.      Increased Credibility

When you set up an LLC, it shows that you’re serious about your business. This can help you attract more customers and clients because they will see that you’ve taken the time to set up a formal business structure.

Additionally, having an LLC can also help you get approved for loans and lines of credit because lenders will see that you’re a low-risk borrower. 

4.      Tax Benefits

An  LLC offers you some tax benefits and flexibility. For example, you can elect to be taxed as an S-corporation if you have an LLC. This can help you save on taxes because S-corporations are pass-through entities that are only taxed on one level, unlike C-corporations that are subject to double tax at both the corporate and individual levels. Also, LLCs can make tax elections that help businesses save on self-employment taxes because owners are not considered self-employed. 

5.      Improved Business Succession Planning

Setting up an LLC can also help with business succession planning. If something happens to the owner of an LLC, the ownership transfer process is typically much smoother.

Additionally, setting up an LLC can help prevent owners’ disputes regarding ownership transfer after the original owner’s death.

Risks Associated When You Don’t Have an LLC

In the following list, we will see some of the risks associated with not having an LLC:

1.      Personal Liability

One of the most significant risks associated with not having an LLC is that the business owner is personally liable for all debts and liabilities of the business. This means that if the business is sued, the owner’s personal assets, such as their home or savings, could be at risk.

2.      Tax Consequences

Another risk of not having an LLC is that the business will be taxed as a sole proprietorship. This can result in a higher tax bill for the business owner. LLCs are tax “chameleons” in that the tax attributes are flexible and take on the characteristics most favorable to the owner. An LLC offers flexibility so that the LLC owner can be deliberate in electing their tax status.    

3.      Difficulty Raising Capital

Another risk associated with not having an LLC is that raising capital for the business can be difficult. This is because investors may be hesitant to invest in a business that does not have limited liability protection.

4.      Professional Licensing Issues

Some businesses, such as engineering and construction, require members of the business to have a professional license to operate legally. Without an LLC, obtaining a professional license for the business can be more difficult.

5.      Increased Administrative Burden

Another risk of not having an LLC is that it can increase the administrative burden on the business owner. This is because sole proprietorships do not have separate legal status from their owners, which can result in co-mingling of personal and business affairs. Maintaining clear lines between personal and business affairs can simplify accounting and bookkeeping.

Final Verdict

Overall, there are many benefits to setting up an LLC for your business. An LLC can offer limited liability protection, tax benefits, increased credibility, and improved business succession planning.

Some risks are associated with not having an LLC, such as personal liability, difficulty raising capital, and increased administrative burden. So, if you’re considering starting a business, you should consider setting up an LLC!

Common questions

Practical, affordable, and complete solutions for you

The cost of setting up an LLC varies from state to state.  You can start an LLC for as little as $89.00 with GeauxPlans. 

No!  You can create an LLC all by yourself without an Attorney (or Attorney Fees!) with GeauxPlans.  We do recommend that you consult with a tax-advisor before making tax elections after the LLC has been created.

An LLC can be established in minutes with GeauxPlans. The processing time will vary depending on the volume level of the Secretary of State, which receives and records all filings.  The effective date of the LLC will be retroactive to the date of filing.  You can elect expedited filing and processing with GeauxPlans. 

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Start your business in Louisiana

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Find out if an LLC is right for you – enter your preferred business name to get started. Starts at $89 + filing fees.

Asset Protection

Protect yourself from personal liability for business risks.

Keep It Simple

LLCs have fewer formalities compared to corporations.

Optimize Taxes

You decide how your LLC is taxed – as disregarded entity, partnership, or corporation.

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registration in Louisiana as LLC

This is based on a preliminary search. A more thorough search will be performed during the LLC formation process
and we will then confirm the availability of your preferred business name.

Let's lock it in. We have formed hundreds of businesses, so count on us to give your LLC the best start!

#1 Tell us about your business

Answer a few questions to help us get to know you and make sure you set up your LLC correctly.

#2 See your personalized offers

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#3 Form with total peace of mind

Let us take care of the legal documents and ongoing requirements so you can focus on building your business.

Tell us about Your Business more

#1 When do you want to start your business?
#2 Is your business your first LLC?
#3 What will your business do?
#4 Where will your business sell its products or services?
#5 Will you have employees the first 12 months?

Choose your registered agent

What is a registered agent?

It is a requirement to specify an official address for service of key documents, including service of legal process. Most businesses use a professional service for this.

Can I be my own registered agent?

Yes, technically you can appoint yourself. However, there are lots of reasons why you may prefer to select a professional registered agent.

GeauxPlans as Registered Agent

Appoint us as the Registered Agent for your business and get total peace of mind - we can take care of this conveniently and affordably.

Premium Benefits:

  • Maintain privacy
  • Protect the legal status of your LLC
  • Ensure timely receipt of critical notices
  • Minimize annual compliance hassles
Price: $249.00 annually

Save time and money on essential documents

From operating to hiring, we'll help you get the right documents, requirements, licenses, and permits to stay compliant.
These costs are tax-deductible.

Operating package

Description:
An operating agreement is your company's constitution. Set guidelines, settle disputes, and protect your assets. An EIN is your LLC's Social Security number. Use it to file taxes, build your staff, and access financial resources. Licenses keep your business compliant and running smoothly. Ensure you have what's required for your specific industry and state.

Price: $149.00
Price: $199.00
Price: $299.00

What's included in package?
  • An OA allows you to set your own rules for your LLC vs. following default state laws
  • Becomes a binding contract with partners so you can start with clear eyes and avoid disputes
  • Protects your assets by helping maintain your limited liability status
  • An EIN helps you open a business bank account, get a line of credit, and apply for loans
  • Prevents identity theft by letting you use your EIN for business, rather than your SSN
  • Required for taxes if you have employees or partners

Select an LLC package below, and you're all done!

Express Gold gives you the most support in getting your LLC up and running when you're ready.
Remember, these costs are often tax deductible, so select the best package for your needs.

LLC package

Description:
Est.processing time: 30 business days. Est. processing time: 15 business days. Includes Economy package + Founder’s kit, embossser & certificates Est. processing time: 10 business days. Includes Standard package + VIP processing & express shipping

Price: $89 + $100 Filing fees
Price: $329 + $100 Filing fees
Price: $349 + $130 Filing fees

What's included in package?
  • We search the name directory to question that your business name is available, complete your LLC paperwork, and submit it with your state.
  • We dot the i's and cross the t's before your paperwork is filed to ensure consistency and completeness.
  • Includes your Louisiana articles of organization, a financial account authorization letter specifying who can open your business bank account, and a step-by-step checklist for after your LLC is formed.
  • Get help when you need it with agents who can answer questions about the business formation process.
  • Mark your important business milestone with a worthy place to store your important documents, printed on archival paper, and delivered in a compact and attractive package.
  • Includes company membership certificates with your newly secured business name.
  • We prioritize your order and rush our process to complete it within 10 business days.
  • Receive your filed docs with our fastest shipping option.

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