Does an LLC protect my personal assets?

Asked almost 4 years ago - Hempstead, NY

I am looking into opening a small business, and will take a start up loan to fund it for the first six months. If things go south, will the LLC protect my personal assets from the bank?

Attorney answers (2)

  1. Michael S. Haber

    Pro

    Contributor Level 20

    Answered . A limited liability company (LLC) combines features of corporations and of partnerships.

    The key advantages of an LLC is that it offers the same type of insulation from liability as offered by a corporation.

    A member of an LLC is generally not personally liable for the LLC's debts in the absence of a personal guarantee.

    Depending on the specific circumstances, however, a bank may not be eager to provide a start-up loan without a personal guarantee, just as a bank would not necessarily be very interested in making a substantial loan to a shell corporation. All of this will depend, in part, on whether the assets the LLC will own will provide the bank with some collateral. And it will also depend, not surprisingly, on your relationship with the bank and your business history.

    Like a corporation, a member of an LLC must be careful to keep his or her own affairs and finances segregated from that of the LLC itself. That means separate bank accounts, among other things.

    Good luck to you.

  2. David J. Abeshouse

    Contributor Level 8

    Answered . I agree with Michael's answer, above, and will add just one point -- it also may depend somewhat on the size of the loan you need (smaller dollars at risk may allow the lender to require a bit less in the way of formalities), your experience in the industry (the more track record you have, the better), and also what kind of small business this will be. The answer to the latter issue may afford you another set of alternatives for financing, if you're in one of the right kinds of business for alternative financing such as, for example, factoring. However, note also that factors also may be likely to seek a personal guarantee. The point here is that you may not want to place all of your funding eggs in one basket, so looking into alternatives to banks might prove fruitful.

    This response is provided for general educational purposes only, and no attorney-client relationship has been formed. It should not be relied upon as legal advice. The response given is based upon the limited facts provided by the person asking the question. To the extent additional or different facts exist, the response might possibly change. The response given is not intended to create, nor does it create an ongoing duty to respond to questions. As they say, "Your Mileage May Vary." Best of luck.

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