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Many young entrepreneurs start businesses under a sole proprietorship or a schedule C ー this is a risky business model. The better choice is to file your company under an LLC to limit your liability.
Here is what Jonathan had to say about the subject.
Limit Your Risk
At all costs, when setting up and structuring your company, your main objective should be to limit risk to the asset-rich parts of your business. So how do you go about limiting your risk? By splitting your company up into different parts.
Feniak advises that if you have parts of your business that are highly litigious, it’s advantageous to split your asset-rich parts of your business from the operating parts of your business. That way, in the event of a lawsuit, your assets are protected.
Why a Single-Member LLC Isn’t the Best Option
While many entrepreneurs feel it’s safe to form a single-member LLC, Feniak advises avoiding this structure in your business if you can. While most people believe that a single-member LLC protects them and their assets, this isn’t always the case.
That’s because, in many states, single-member LLCs aren’t given the same respect as multi-member LLCs or even husband and wife LLCs.
Feniak states that you should always start with a liability policy. Having a liability policy can help safeguard you from lawsuits where an accident or some employee issue becomes litigious.
Without a liability policy, your single-member LLC is susceptible to veil piercing. Veil piercing is when a plaintiff or judgment creditor seeks to pierce the veil of your LLC. That means they believe your business shouldn’t be separated from you as an individual so they can come after your assets.
One way business owners put themselves at risk is by co-mingles their accounts — for instance, paying for groceries from your business account or paying expenses for your business with your personal account. In such cases, it’s easier for someone to come after a single-member LLC for your assets.
Wyoming LLC: A Barrier of Protection for Single-Member LLCs
If for some reason, you aren’t in a position to create a multi-member LLC or you don’t have a spouse to form a husband and wife LLC, Feniak suggests adding a layer of protection with a Wyoming LLC.
A Wyoming LLC can act as a holding company for your state-based single-member LLC. In doing so, you add a layer of protection against veil piercing and other litigious issues.
For instance, let’s say your state-based LLC veil got pierced. On the other side would be your Wyoming LLC, not your personal assets. By splitting up your company into a holding company that houses one or more companies underneath it, you add a layer of protection to your business.
Under Wyoming laws, it’s very hard to pierce the veil of your single-member LLC.
Using a Wyoming Asset Protection Trusts to Safeguard Your Assets
Another way to protect your assets is through a Wyoming Asset Protection Trust. Feniak describes it as creating a rich aunt or uncle. You send your assets as a “gift” to protect against them lawsuits.
Meanwhile, your money is still accessible when you need it. It allows you to protect your assets where an LLC or personal trust cannot.
Protect Your Most Valuable Assets
If you own a business and want to learn more about protecting your assets, contact Jonathan Feniak at ColorodoLLCattorney.com.