Part 2 of the continuing series ‘Your New LLC’

Once your LLC is formed, it is important to properly operate and conduct business through the LLC to best ensure that you benefit from the biggest legal advantage of the LLC – limited liability protection. In a nutshell, limited liability is what insulates you personally from the debts and liabilities of the LLC. In order to take advantage of this benefit, there are certain things you can, and should, do to give yourself the best chance of separating your business liabilities form your personal assets. While the limited liability protection provided by an LLC is not always absolute, it can be made as impenetrable as possible by proper advance planning and diligent operating procedures.

First, you should have a governing document, known as an operating agreement, that sets out the rules and details of the LLC and the relationship among the members. An operating agreement, similar to a shareholders agreement for a closely-held corporation or a partnership agreement for a partnership, is advisable even if there is only one member or owner of the LLC. It is a private, internal document that can include just about anything the members want, but at a minimum typically includes the ownership and voting percentages, voting rules, methods for operating the business, and the processes for the addition or removal of a member and for dissolving, or ending, the LLC. The operating agreement is the best way, particularly in LLCs with multiple members, to avoid or resolve internal disputes among the members once the business is up and running – it puts everyone on the same page and sets the expectations, rights and responsibilities of each member.

You should also maintain a separate bank account for your LLC and should avoid “commingling” of personal and business funds. Basically, don’t buy your personal groceries with the LLC debit card and don’t deposit checks made out to the LLC in your personal bank account. Good bookkeeping is also important. Consider hiring a bookkeeper or accountant if you are unable to or not have the time to do so yourself.

Additionally, it is important to hold yourself out to the public as doing business through your LLC. Try not to let your personal identity and the identity of the business become interchangeable or appear as one-and-the-same. This can lead to a court decision that you are not entitled to limited liability protection and potentially lead to a judgment involving the personal assets of the members. So make sure all contracts and agreements are with your LLC and not you personally, and be certain to always execute or sign contracts and agreements in your “corporate” capacity as an LLC member or officer.

In summary, having the proper structure in place for an LLC and treating it like a true entity separate and distinct from its members, such as having a written operating agreement, maintaining a separate bank account, and entering into contracts in the name of LLC, is critical to maintain the main legal reason for forming an LLC – limited liability protection. As such, you should discuss your business goals as well as your own personal goals with your attorney before forming your LLC to ensure that you make the right choices from the start.

In the next part to this series of articles on LLCs, we will discuss licensing and permitting considerations that need to be addressed after you form your LLC.

“Your New LLC” – Part 1: The Basics