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Is a Limited Liability Company Right for Your Business?

Dennis D. Duffy · Mar 28, 2012 ·

Limited liability companies are the entity chosen for many businesses because they are easy to set up, simple to run on a day-to-day business, are pass-through entities for income tax purposes, and offer asset protection. Is a limited liability company (LLC) right for your business?

Asset Protection as a Huge Benefit

LLCs are used in comprehensive estate planning to insulate liability and prevent assets from being seized by creditors.

An Example: When Asset Protection Matters

Frank, Jim, and Pam owned their lighting supply business in an LLC. In addition, they owned the businesss 3 delivery vans in a separate LLC.

When Jake, an employee, crashed into a school bus full of cute little first graders, killing 3 and seriously injuring 12, Frank, Jim, and Pam were sued. The jury verdict was $33 million.

  • The auto insurance paid the first $500,000.
  • The business umbrella liability insurance paid the next $5 million.
  • The remaining $27.5 million was never paid. The business assets were protected; Frank, Jim, and Pams personal assets were protected.

Why?

The delivery van that Jake was driving was owned in an LLC. Liability was insulated to that LLC alone. The only assets in the LLC were 2 other delivery vans valued at about $15,000 each.

A charging order was issued, meaning that the creditors would receive whatever was distributed within the LLC. There were no assets to distribute.

Even if the jurisdiction allowed the court to foreclose on the assets in the LLC, recovery would be limited to the $30,000, the fair market value of the 2 remaining delivery vans.

Consult with a Qualified Estate Planning Attorney

If you would sleep better at night knowing your assets are protected, consult with a qualified estate planning attorney to determine whether a limited liability company (LLC) is a good fit for your business.

  • Author
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Dennis D. Duffy
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