Do single member LLC’s protect you? I’m debating on starting an LLC for my soon to be inspection business, but almost everything I have read so far says that single member LLC don’t provide much protection compared to the multi-member ones. Too easy to pierce the corporate veil because you are the company. I was debating between the single member LLC and a sole proprietorship. I don’t see the point in spending the money if I’m not even protected. I’d rather spend more money on a higher E&O policy. Prefer real life experiences, but any help would be appreciated. thanks, Justin
I am a single member LLC. Doing the best job that you can, being as educated as you can will protect you the most. There is inherent risk in anything you do. You LLC will provide you better protection than climbing a ladder a dozen or more times per week, over 500 inspections. Even 100. Think about it. If you are willing to climb a ladder and do this…get on a roof… then spend the money to protect yourself with an LLC, get really good at your craft…and forget about it…and get good insurance.
Justin you need both a LLC and E&O.
If you use LLC status, make sure the corporation is well funded. Without proper funding, it provides you no protection whatsoever.
Can you prove that theory or is it just what people believe?
Check with your own attorney. I have, thus the statement.
My question is this set in stone? And what is the limit you must keep in your business account for a LLC to stand effective?
One dollar. You can “zero out” your account at the end of every year (a common accounting practice) if you want to.
I think that Mark might have a different opinion.
I formed a corporation or limited liability company. Now what? - InterNACHI® #5
That’s what I hear as well. I’m trying to figure out why you have to have a well funded LLC in order for it to be in effect. I read that no where when I researched LLC’s. Steve where did you’re lawyer get his info from?
Billy, if you are concerned, then you need to check with YOUR attorney, for the states in which YOU operate. The rules for piercing the corporate veil could differ from state to state.
A corporation doesn’t need a bank account at all. I formed several corps that have no bank accounts, have never had one, probably never will. For example: The domain name InterNACHI.org, along with other intellectual property, is owned by a holding corporation that doesn’t have a bank account.
Define “well-funded”
On the advice of my tax attorney, my company is set up as an S-Corp. The way it was explained to me, in short, it’s like an LLC, Sole Proprietor & C-Corp all rolled into one.
I carry E&O because it’s a requirement of Ohio Dept. of Ag. to perform WDI. But even if it wasn’t I’d still have it. For me & my business this decision is a no brainer.
Just a bit of advice, before you make your final decision, although you will get good advice here by many with good intentions, consult with your CPA, if you don’t have one, get one. A good CPA will put more money into your pocket than he takes out.
Below is a couple different quotes I copied. I’ve been finding information that says it works for protection and some that says it does not. I’ve also found in numerous locations that a single member LLC should be properly capitalized. It also says that you should have a single member operating agreement and have monthly meetings with minutes. I’m having trouble justifying an LLC if it may or may not protect me. I’d almost rather spend the money on more insurance. But I still need to talk to my lawyer to see what’s best. I’m just trying to do some research upfront.
"Personal Liability
According to Scott Edward Walker of Walker Corporate Law Group, the greatest disadvantage of a single-member LLC is the risk that you will not be protected against personal liability in the event of a lawsuit or an audit. It is possible that your personal possessions, including your home, cars and investments, could become entangled in a lawsuit against your company. If your company is not regarded as a separate entity, you risk losing your personal possessions as part of legal concessions."
"While each situation is unique, at a minimum, a single-member LLC should:
- Assure it is properly capitalized given the nature of its business operations
- Maintain separate accounting records and bank accounts, and avoid comingling funds with its owner
- Not cause excessive capital to be distributed to the owner
- Be clear in its agreements and communications with third parties that it is acting on its own behalf and not strictly on behalf of its owner"
I don’t believe it’s a term anyone uses in regards to a properly set up LLC
Kevin, your attorney gave you good advice. Also, in an S corp, you don’t need to zero out the corp at the end of the year like you do with a C corp to avoid double taxation.