If you are looking to start a business in Los Angeles, California, you may be wondering what type of business entity is best. Many business owners opt to form a limited liability company, which offer certain protections against the individual owner. Why? Because limited liability protection helps protect your personal assets from business debts and legal judgments. Essentially, limited liability protection provides a shield for your personal assets, meaning your personal assets are protected and cannot be accessed to pay for compensatory damages resulting from legal liability. Without such limited liability protection, your personal assets (e.g., liquid assets, savings, properties, investments, etc.) may be at risk.
Types of Business Entities Offering Limited Liability Protection
When establishing a business, it is important to engage in rigorous research to ensure your corporate formation is proper and provides the necessary level of legal protection. This is where the guidance of an experienced business lawyer in Los Angeles could pay dividends. Conducting sufficient research is important because not every business entity provides the same level of legal protection.
For example, corporations and limited liability companies provide liability protection. In contrast, a general partnership and sole proprietorship offers no such legal protection. Similarly, limited partnerships offer little liability protection to the general partner.
How to Maintain Limited Liability Protection
As a business owner there are important actions you need to take to maintain your limited liability protections, including:
- Do Not Commingle Assets – While it may be convenient to use business funds for personal expenses, it should be avoided. Why? Because using business funds for personal expenses, or maintaining business funds within a personal checking account, is known as “commingling assets.” If a court were to rule on that business and personal assets were commingled, it could expose all of your personal assets to be liable, in the event of an adverse judgment in a civil lawsuit.
- Create and Maintain an Operating Agreement – When forming your business, make sure to draft and maintain a detailed operating agreement if you form a limited liability company. This legal document helps define the rights and responsibilities of members, even if you created a single-member LLC. Once created, make sure to follow the operating agreement and observe any formalities contained within the document.
- Properly Complete All Necessary Administrative Filings – Make sure to complete all necessary filings with the California Secretary of State. This helps ensure your company remains in good standing with business regulators.
Please note, this is not an exhaustive list of all of the things that must be done to maintain limited liability protection. Instead, it is an overview of key principles.
Limited Liability Protection Does Not Protect Everything
It is important to understand there are limits associated with limited liability protection. For example, limited liability protection does not confer to any criminal or fraudulent activities associated with your business. Basically, this means if you or your employees decide to engage in illegal actions, you could be held personally liable.
Have Questions or Need Advice on How to Set Up a Business with Limited Liability Protection? Contact an Experienced Business Lawyer in Los Angeles Today
If you have questions or need advice about setting up a business with sufficient limited liability protection, contact the highly reputable Hakim Law Group today. Our team of highly experienced business lawyers in Los Angeles stand ready to help your business establish a sound foundation for your business. For further information or to schedule an appointment with an expert business attorney in Los Angeles, please contact The Hakim Law Group at 310-993-2203 or visit www.HakimLawGroup.com to learn more.