I have mixed feelings about LLCs.
In theory it sounds great ... "protection from personal liability" ... but in reality ... more is required.
If you do not adhere to all of the required and recurring formalities ... if the LLC is underfunded ... or if the LLC operates as your alter ego ... the corporate veil can be pierced ... which is a long winded way of saying ... you could still be on the hook anyway.
It is also possible that you could get sued indirectly for alleged fraudulent transfers (transfers made while the company was insolvent).
It's not just as simple as file a piece of paper and pay a fee.
Which ... speaking of ... can add up.
First ... the fees to form the company ... then the annual registration and reporting fees ... then the annual fees for the designated agent for service ... tax returns ... etc. etc. etc.
The government just loves to nickel and dime you. And LLCs are a good tool for just that.
It adds up.
And then there is also the "pain in the a$$" factor ... filing out these piles of forms ... and having to dig them up every time you try to open a bank account or whatever ... yuck!
Speaking of ... in most situations ... banks or other lenders will not loan the LLC money unless you (personally) guarantee the loans ... or unless you (personally) guarantee the commercial lease ... or whatever.
Still on the hook.
And odds are ... you will never avail yourself of the limited LLC protections anyway.
And even if you got sued ... are you collectible ...?
If so ... no difference.
Eligible for bankruptcy? Good. Nuclear option.
Odds are ... it will be just a lot of fees, paperwork, and pain in the a$$ ... for nothing.
Oh ... one more thing to keep in mind:
Even if you are not (ultimately) on the hook ... and there were no fraudulent transfers ... you could still end up paying a lot in legal fees "proving it" in court. Not cheap.
And if you (do) have to go to court ... you'll have to hire a lawyer. Unlike individuals, corporations cannot represent themselves. Ouch! No self help collection remedy for you.
Now ... with that said ... I am not saying you should never form an LLC. There are plenty of good reasons to do it. Particularly if you are collectible, bankruptcy is not an option, or if you have a lot of money invested in the project.
But all too often I see people running out to form LLCs ... for no good reason beyond that's what people told them to do.
There is no one size fits all answer. Just pros and cons based on the unique circumstances of your situation.
In theory it sounds great ... "protection from personal liability" ... but in reality ... more is required.
If you do not adhere to all of the required and recurring formalities ... if the LLC is underfunded ... or if the LLC operates as your alter ego ... the corporate veil can be pierced ... which is a long winded way of saying ... you could still be on the hook anyway.
It is also possible that you could get sued indirectly for alleged fraudulent transfers (transfers made while the company was insolvent).
It's not just as simple as file a piece of paper and pay a fee.
Which ... speaking of ... can add up.
First ... the fees to form the company ... then the annual registration and reporting fees ... then the annual fees for the designated agent for service ... tax returns ... etc. etc. etc.
The government just loves to nickel and dime you. And LLCs are a good tool for just that.
It adds up.
And then there is also the "pain in the a$$" factor ... filing out these piles of forms ... and having to dig them up every time you try to open a bank account or whatever ... yuck!
Speaking of ... in most situations ... banks or other lenders will not loan the LLC money unless you (personally) guarantee the loans ... or unless you (personally) guarantee the commercial lease ... or whatever.
Still on the hook.
And odds are ... you will never avail yourself of the limited LLC protections anyway.
And even if you got sued ... are you collectible ...?
If so ... no difference.
Eligible for bankruptcy? Good. Nuclear option.
Odds are ... it will be just a lot of fees, paperwork, and pain in the a$$ ... for nothing.
Oh ... one more thing to keep in mind:
Even if you are not (ultimately) on the hook ... and there were no fraudulent transfers ... you could still end up paying a lot in legal fees "proving it" in court. Not cheap.
And if you (do) have to go to court ... you'll have to hire a lawyer. Unlike individuals, corporations cannot represent themselves. Ouch! No self help collection remedy for you.
Now ... with that said ... I am not saying you should never form an LLC. There are plenty of good reasons to do it. Particularly if you are collectible, bankruptcy is not an option, or if you have a lot of money invested in the project.
But all too often I see people running out to form LLCs ... for no good reason beyond that's what people told them to do.
There is no one size fits all answer. Just pros and cons based on the unique circumstances of your situation.
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