One of the most significant reasons to form Limited Liability Company (LLC) is to get liability protection. As a corporation provides a legal shield against their shareholders’ assets, an LLC offers legal protection for the owner’s or members’ personal assets from business claims or debts. The risk of the LLC owner and members is generally limited to the amount of their investment.
However, when your business is in a trouble such as a lawsuit, the court might go after you and your personal assets, especially if you have a single member LLC and haven’t followed certain rules with your LLC.
Here are some important basic rules to follow when you have a single member LLC:
1. Create separate business banking accounts and credit card accounts. When you open them, use your EIN, not SSN. An EIN is a federal employer ID number issued by the IRS. You can get it fast and easy from the IRS website or over the phone. With the EIN, you don’t have to worry about your SSN passing around among your clients, and your business accounts look more adequate.
2. Fund your limited liability company adequately. Don’t intermingle your LLC funds with your personal transactions. When you receive payments from your customers, make sure payments are made to your company name, not to you.
3. Be clear with books. Keep your personal transactions from the company accounting books. Buy supplies, parts or equipments using your business bank account checks or business credit cards. Not only it differentiate your business from you, but your LLC can also build credit history.
4. Use your company name when you sign any contracts or agreements. Look carefully if it has a provision of personal guarantee.
5. Keep your limited liability company records and documents properly.