What is an LLC?
If you’re starting a business, odds are you’ve been told you should start it as an LLC (Limited Liability Company). However, many people do not understand exactly what a LLC is or the significance of forming an LLC.
For starters, LLC stands for Limited Liability Company (not Corporation). Its history is rooted in late 19th century Germany, but it didn’t catch on in the United States until Wyoming enacted an LLC law in 1977. Even then, it was eleven years before the IRS approved it and another decade before it became common practice nationwide. Since it is so new, there’s relatively little guidance from courts on how to interpret LLC law, but time has thus far shown the LLC to be an effective method of protecting an individual from full personal liability in Beloit and Janesville Wisconsin.
Limited Liability Company Defined
Limited liability means if the business is found legally liable for a loss or damage suffered by another party, the individual owners can only be held liable financially to the extent of their financial stake in the business (with very few exceptions). For example, by forming an LLC – Limited Liability Company, with the business owner as the sole member, and the business is worth $20,000, you are liable for up to $20,000 in legal losses and no more. (Though it is not uncommon, however, for an individual to be sued in addition to the business.
The value of this liability limitation is significant. Most small businesses are not cash rich, meaning a lawsuit can quickly deplete their assets. Once those business assets are gone, an LLC inhibits the other party from taking personal assets as well.
What Forming An LLC Does For A Business Owner
If you’re a sole proprietor, any legal mistake you make can end your business. The classic example is if someone slips on your sidewalk, they can sue you for all you’re worth. Organizing as an LLC is designed to limit liability but it cannot stop individuals from trying to sue you personally.
If someone slips on the sidewalk of a business organized as a Limited Liability Company, they can only sue the business for its assets, not get at the owner’s personal assets. This means you can start a business without worrying that your retirement fund and your home will be at risk of loss through a lawsuit.
How Do I Go About Forming An LLC?
In Beloit or Janesville Wisconsin, you can become an LLC by filing with the state Department of Financial Institutions. However, there may be other necessary documentation for your LLC to operate effectively. Monahan and Johnson can assist you in forming an LLC – call or email us today for a free consultation.
Monahan and Johnson S.C. offers free consultations to Beloit and Janesville WI business people and will assist you in deciding whether forming an LLC is the right business structure for you and your family’s needs. Call or email Tom Johnson today at 608-362-8086 for more insight relative an LLC and other important issues about business structure.