How Can Your Personal Liability Be Limited?

Our firm handles the formation of many business entities. We also draft trusts. When engaged in these activities it is common that a Client will ask about the concept of Limited Liability. They have heard about it, want it and want to make sure that the documents we are preparing will provide it.

Limited Liability can be an elusive goal. Many things will help, but a well thought-out plan is best. Here is what we suggest for a simple plan that is relatively inexpensive to put in place.
The first line of defense for your personal assets is a good liability insurance policy. Back it up with an umbrella policy with sufficient limits to furnish real protection.

The second line of defense is your choice of business entity. Both Corporations and LLCs have the benefit of providing some limited liability. There are many considerations in choosing a form of business entity and this decision should be made only after discussions with your CPA and Attorney.

A third line of defense is how you decide to own your other assets. High value assets can be placed in LLCs. Some of our real estate investor Clients put each property in a separate LLC so a problem with one property will not become a problem for all. A good argument in favor of an LLC for this purpose is that it is difficult for a creditor to collect from an LLC. The harder it is to collect, the more opportunities exist to advantageously settle a creditor claim.

A final line of defense is to carefully choose the people you will associate with, both personally and professionally. It is amazing how casually people will enter into business and personal relationships. This is asking for trouble. As a general rule, no one should consider entering into any business relationship without knowing everything possible about their future associate. In some cases, an exhaustive background and asset check by a competent investigator should be
considered.

Nothing is foolproof. Nothing today can be guaranteed. But taking prudent precautions will make it much more likely that you and your children will be able to enjoy all of the assets you have spent a lifetime creating.