How Does Forming a Corporation Or LLC Protect My Business Or Personal Assets?

How Does Forming a Corporation Or LLC Protect My Business Or Personal Assets?

How does forming a corporation or LLC protect my business and my assets? When people hear the term “asset protection,” they sometimes have negative connotations, thinking that you’re hiding things from your creditors. 

A firewall

Actually, it’s a process that’s been around for a long time. Forming a corporation or an LLC, a limited liability company, is a way of shielding your personal assets from your business assets. It creates a firewall or a line between what you own personally and what your business owns. 

So you form a corporation or an LLC and it’s a separate legal entity that owns whatever assets of the business. The money flows through that separate legal entity, whether it’s a corporation or an LLC. 

Why asset protection is important

And if, for example, the business has some kind of a debt it can’t pay, or one of its employees is injured on the job and they sue the corporation, they get a judgment against the corporation; they try to collect against the corporation’s assets. So whatever assets the corporation owns, that’s all the creditor can go after. Your personal assets are completely separate. 

If you didn’t have the corporation and you’re running a business through your personal name or a DBA, sole proprietorship, basically any creditor that sues you sues you personally and gets a judgment against you personally. Even if it’s for a business debt, they can come after your house, your car, your savings, or your retirement. Everything. 

What you must do

So, it’s extremely important to not only create a separate legal entity and to run your business through a corporation or a limited liability company, but also to make sure that all the proper protections are in place of separating your business affairs from your personal affairs.

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