Limited Liability Company - Reasons Your Business Could Die Without One

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Posted on: 18th Jun 2014

A limited liability company (or LLC) is one of the most talked about subjects in relation to business development and personal liability protection. By now, you must have come across several articles on the importance of setting one up, as well as the reasons for doing so. Unfortunately, it is likely that you still don�t fully understand the risks associated with not creating such protection. Or, perhaps you do understand, but have continuously put it off for a later date. In either case, keep in mind that not setting up liability protection for your business is not only risky for your personal assets, but is potentially fatal to your business; even if you don�t get sued. This post will discuss some of the ways that not setting up liability protection can destroy your business.

It�ll End Up Being Merely a Sole Proprietorship
As you already know, not setting up a limited liability company will put your personal assets at risk if your business is hit with a court-ordered financial judgment, and does not have sufficient capital to cover the debt. Without the protection, your company is merely a sole proprietorship. This means that if you are ordered to pay a judgment by a court-of law, your house, car, bank accounts, and investment savings will be used to satisfy the judgment. But with limited liability company protection, only your business assets will be affected. No creditor is legally permitted to start digging into your personal assets (unless the creditor succeeds in piercing its corporate veil) if there is not enough sufficient funds in your business to cover the entire judgment.

Business Ownership Could Be Far More Expensive
If your business is not set up with a limited liability company, it could end up costing you more to manage and maintain it. As a business with sole proprietorship status, your tax liability may be much higher than if it were an LLC setup. Also, some vendors provide discounts on goods and services to businesses with limited liability company protection. Without it, vendors might charge you more for the same products and services.

Others May Not Take Your Business Seriously
Prospective customers and clients tend to trust businesses with limited liability company status more than they do businesses without it. Because of this, businesses with no LLC protection will often not be taken seriously. There�s something about seeing the LLC acronym behind a business name that gives the immediate impression that it is a professional, well-organized, and trustworthy enterprise. However, without the acronym, your business stands a good chance of being taken lightly and ultimately failing simply for this reason.

You�re Likely Not to Take Your Business Seriously
Without limited liability company status, you�re more likely to treat your business like a casual hobby, than a noteworthy company. Subconsciously, you may not see your business as anything to be taken seriously because you haven�t shielded it with personal liability protection. Once you�ve set up the LLC, you�ll begin to believe that you have a genuine business that needs to be managed like a real business. On the other hand, if you don�t set up an LLC, you�ll be less likely to take it seriously; which could ultimately lead to its demise.

Your Business Could Be at Risk of Commingling Funds
Commingling is the act of combining your personal and business funds into one bank savings account. Commingling funds is a federal crime that will not only destroy your business, but also damage your personal reputation (let alone compromise your personal life). You may not think that this is important, but the likelihood that you will inadvertently commit this crime will be far greater if your business doesn�t hold LLC status, than if it does. With an LLC, you will be required to comply with local and federal laws; one of which includes keeping separate bank accounts for your personal and business funds.

Your Business Could Be Targeted By Predators
Predators may attack your business, because of its non-existent LLC status. The limited liability company protection will make it appear legitimate, and also give it the impression of being legally secure against predatory practices.

Your Business May Be Harder to Sell in the Future
Without limited liability company protection, your business may be harder to valuate, and therefore more difficult to sell to future business buyers. Assuming that your business is appraised, if you did manage to sell it, you may end up selling it below its market value because of its non-existent LLC. That said, your business could be worth more in financial terms with limited liability company status than without it.

Conclusion
The take away here is that without limited liability company protection, you will risk killing off your hard-earned personal property. Your business may thrive at some point, but will eventually fall to pieces one way or the other if it doesn�t have personal liability protection. If you haven�t done so already, now is the time to set up a limited liability company, and shield your business from eminent financial death.

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Limited Liability Company - Reasons Your Business Could Die Without One

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