Misconceptions About What an LLC Protects You Against

Misconceptions About What an LLC Protects You Against

Are you hoping to start a Kansas LLC or Missouri LLC?  Is one of the driving reasons the many protections it will provide you with?  It’s a great reason, but it’s also one that far too many business owners don’t understand.

3 Misconceptions About the Protection Offered by LLCs

Before you start a Missouri LLC or Kansas LLC, it’s vital that you know what exactly that kind of protection it will offer.  Even a minor misunderstanding could cost you dearly.

1. An LLC Will Protect My Personal Property

It’s true that if you form a Missouri LLC or Kansas LLC, you’ll create separation between your personal and business assets. If someone sues your company, you can’t be legally compelled to use your personal assets to pay them if you lose.  However, some owners form a Kansas LLC or Missouri LLC thinking that will protect personal property they classify as business assets.  For example, you can’t put your beloved fishing boat in your company’s name in case someone sues you. Unless the boat serves a proven business purpose, creditors will probably have no problem going after it.

2. Forming an LLC Is Enough to Benefit from Its Protection

Another widespread misconception about the protection received when you start a Missouri LLC, or Kansas LLC is that this benefit is automatic. Far too business owners file to become an LLC and leave it at that. Unfortunately, they end up learning the hard way that this wasn’t enough to protect their assets after losing a lawsuit.  This is why it’s so important that you seek legal advice when forming an LLC. Aside from filing to become an LLC, you also need to create an operating agreement. Even if you own the business and you have no partners, this kind of contract will establish a formal separation between you and your business.
Otherwise, it could be easy to make the argument that while you have formed an LLC, it acts as just an extension of personal finances.  This operating agreement should formally define the powers you have as the business owner.

That would include things like:
• Opening a bank account
• Signing contracts
• Taking on debt

Basically, it’s a list of every action you need to take on behalf of your business.  Then, if you ever need to take any actions that are out of the ordinary (e.g., make a significant change to a longstanding line of business or take out a large loan), enact a special resolution. Again, this is another formal step you can take to make it clear to the authorities that you and your company are two entirely separate entities.

3. Starting an LLC Defends Against Personal Liability

Unfortunately, even if you take the above steps to create sufficient separation between your personal and professional finances, you can still face personal liability after you start a Missouri LLC or Kansas LLC.  In short, this would happen if you leveraged your personal finances to help your business.  One typical example would be personally guaranteeing a loan you need for your company. This happens a lot during the early days of a business when the organization hasn’t built up sufficient credit yet.

However, by doing this, you’re giving up the limited liability protection on your debt. So if your business can’t pay back what you owe, you’ll be held personally responsible.

Get Experienced Legal Advice Before Starting an LLC

It still makes sense to start a Kansas LLC or Missouri LLC.  You need to speak with a legal expert before proceeding to ensure you receive all the protections you’re due.  At Lex Launch, we can help. Give us a call today at +1 (816) 434-6610, and we’ll walk you through how we’ve helped other business owners just like you make the transition to an LLC the right way, so they enjoy peace of mind knowing they’ll enjoy every benefit involved.

2018-06-15T19:59:09+00:00