A limited liability company (LLC) offers many advantages as a business form, but perhaps none is more critical than shielding owners from legal liability in the event that the business is sued. If you are looking to invest in real estate, then protecting your personal assets should be a priority. At Startup Company Counsel, our San Jose real estate attorneys advise clients every day about how they can invest smartly.
Sole Proprietorship vs. LLC
Small businesses often form as sole proprietorships. The owner uses their Social Security Number and reports any income from the business on his or her personal tax return. However, there is no distinction between the sole proprietorship and the owner, which means the owner is legally responsible for all business debts, obligations, or liabilities. For example, if the owner signs a lease, he or she is personally responsible for covering the cost of the lease even if the lease was for the company.
The same is true if you form a partnership with other people. Legally, the partners will be liable for all partnership debts and other financial obligations.
With an LLC, by contrast, the owners are legally separate from the company. This is beneficial in that it shields the owner’s personal assets in the event creditors or injured people bring lawsuits against the business. Although the company’s assets will be vulnerable, an owner will be protected from losing their personal assets, such as their home or savings.
Liability and Real Estate
As a real estate investor, your company could be sued in a variety of situations:
- Someone is injured on the property and brings a personal injury lawsuit
- An employee, like a property manager, sues for the violation of workplace laws
- A lender sues on a loan
- A person who does improvements on the property sues for non-payment
In each of these situations, an LLC will shield your personal assets from a creditor or injured plaintiff. Instead, the person suing you will only be able to get company assets if they win the lawsuit.
It should be noted that simply forming an LLC does not shield your personal assets. There is a multitude of different situation that an injured party could ask the court to “pierce the veil” and allow them to reach through and grab the owner’s personal assets. As such, it is imperative to have a knowledgeable attorney assist you in your formation and operation of your LLC.
Forming an LLC Properly
Although forming an LLC may seem easy and straight forward, there are number of pitfalls to avoid and considerations to take into account before forming an LLC. For these reasons, you need an experienced San Jose real estate attorney to help you form your LLC the right way. Doing so will help you understand and utilize all the advantages the LLC has to offer while insulating you from lawsuits.
Talk to a San Jose Real Estate Attorney at Startup Company Counsel
Forming a business is more complicated than many people realize. Critical errors can compromise your company’s livelihood and your financial security. To start the process of forming your LLC, please contact us today by calling 408-441-7555 or by sending us an email.
