Keys to Protecting Your Personal Assets from Business Liability
You’ve formed your Minnesota LLC, which is the first step in separating your business liabilities from your personal assets. However, there is more to do than merely filing paperwork with the Secretary of State to protect your personal assets.
In the eyes of the law, an LLC is a "legal person" separate from its owners. To keep that shield strong, you must consistently treat the business as a separate entity. If you fail to do so, a court could potentially allow creditors to bypass the LLC and come after your personal savings, home, or other assets to satisfy business debts.
To help you maintain the integrity of your limited liability protection, these are the top 3 things to keep in mind:
Don’t Commingle Personal and Business Funds - If you use your business bank account to pay for personal groceries, or your personal account to pay for business inventory, you are blurring the lines between you and your company.
Best Practice - Open a dedicated business bank account using your LLC’s Employer Identification Number (EIN) and use it exclusively for business transactions.
Clearly Separate Your Business Identity - Your customers and vendors should always know they are doing business with the LLC, not you as an individual.
Best Practice - Use your LLC’s name on all business documents and communications such as contracts, invoices, marketing materials, email signatures, and signage.
Maintain Business Records - It is important to document major business decisions and be able to demonstrate that your business is a functioning, independent entity.
Best Practice - Maintain a minute book or a digital file where you document significant actions such as hiring key employees, taking out loans, entering into major contracts, or making distributions to members.