For millions of people, running a successful business is the ultimate dream. Unfortunately, many do not realize that their dreams can become personal legal nightmares if they are sued by a customer, contractor, employee, or even another business. Imagine losing homes, vehicles, and even personal savings because of business dealings. This is the reality sole proprietorships and partnerships face each day because they fail to legally protect their personal assets. There will come a time when every business – whether it is a sole proprietorship, a partnership, or a corporation – has a legal dispute. When the inevitable occurs, the hard-earned personal assets of individuals running some of those businesses are at risk.
Under a sole proprietorship, an individual can register to do business under a certain name. In a partnership, two or more individuals join to run a business. Under these types of business entitles, individuals are personally liable for any issues that may arise through operating those businesses. There are several ways for sole proprietorships and partnerships to protect personal assets. Individuals and partners can form a limited liability company, also called a LLC, or they can form a C or S corporation.
When individuals or a group form an LLC or a corporation, they are creating separate legal entities. Members of an LLC can include individuals and partnerships. Each member has full limited liability from actions of the LLC, meaning they are not legally responsible. Corporations are legal entities owned by shareholders. Just like members of a LLC, shareholders are not personally liable for the corporation’s actions, except in certain unique circumstances that are beyond the scope of this blog. A person or partners can place assets under the LLC or corporation, or they can select certain assets – such as real property – to hold under the LLC and elect to maintain certain personal property. LLCs and corporations can execute contracts, borrow money, and buy, hold, or sell real property and personal property.
Placing assets under an LLC or corporation provides a layer of security against those that may seek legal action against individual members or stockholders. Conversely, the assets of an LLC or corporation are protected against personal lawsuits brought against members or shareholders. Since laws governing LLCs and corporations vary from state to state, it is important to consult with a lawyer specializing in business and commercial law help sole proprietors and partnerships form LLCs and corporations. We can advise you on the best structure for your business and the steps needed to operate the LLC or corporation properly to avoid personal liability.
The Law Offices of Terry L. Gilbeau provides personalized counsel to clients in a variety of business and personal matters, including creditors’ rights, debt collection, products liability and international transaction issues. His office is located in Rocklin, CA, just outside of Sacramento, CA, near Roseville, Lincoln, Auburn, in Placer County and can be reached at (916-626-5539) or email Terry at firstname.lastname@example.org. Click here for the firm website http://www.gilbeaulaw.com/