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Advice for Sole-Owner LLCs

Working too muchIf you are a single-owner of a limited liability company (LLC), it is important to understand that registering with the Secretary of State may not be enough to limit your personal liability. Filing your Articles of Organization is important, but so is what you do after you register your entity.

A creditor’s lawyer will conduct an investigation to determine whether you have maintained the appropriate separation between you and your business. In other words, has your business acted like an entity? Below are a few steps to take to ensure it has and to limit your personal liability:

  • Create and execute a written Operating Agreement. While it may seem odd to have an agreement with yourself, this document is important because it outlines how your business is organized and the responsibilities of the company.
  • Do not use your personal bank account to operate your LLC. Your entity should have its own account, which may include you obtaining an employment identification number (EIN). An EIN prevents you from having to use your Social Security number for different tax purposes.
  • Do not mix your LLC’s funds with your personal funds. You should never deposit the LLC’s incoming revenue into your personal account. If you need to reimburse yourself for something, make sure the payment comes from the entity’s bank account and is noted on the company’s books.
  • Always sign contracts or other legal documents with the entity’s legal name and your title. For example, the signature line should read “ABC, LLC, by: John Doe, Manager (or other title such as “Member”). Always use the full name registered with the Secretary of State in your Articles of Organization, unless you also registered a shortened name.
  • If you remove money or assets from the LLC, be sure to document the purpose. Common examples include loans, compensation, reimbursement, and profit/dividend distributions.

These are just a few tips for limiting your personal liability as a single-owner LLC. To learn more, contact the business lawyers at The Swenson Law Firm.

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