Running a successful business involves more than balancing the books. Legal protection, especially for real estate or significant assets, is essential for minimizing risk and shielding personal wealth. CPA Hunt Demarest of Paar Melis and Associates explores the importance of asset protection through LLCs, drawing from personal experience to highlight what business owners should know. This blog is based on episode 143 of Business by the Numbers Podcast
First, why consider an LLC? It provides a layer of liability protection, effectively creating a “corporate veil” around your assets. This legal structure can help ensure that, should anything go wrong, only the LLC’s assets—not your personal wealth—are at stake. Here are some steps to consider:
- LLCs as a Barrier: Using an LLC separates your personal and business assets, limiting liability should any legal issues arise. This is especially valuable in cases involving property ownership, where lawsuits could target personal assets.
- Double-Check Your Deeds: Hunt emphasizes double-checking that your LLC’s name is on all deeds and titles. He shares an instance where an oversight left his personal name on a rental property’s deed—a costly and common mistake.
- Single-Member vs. Multi-Member LLCs: For simplicity and tax benefits, Hunt recommends single-member LLCs for those owning properties alone. Multi-member LLCs introduce added administrative requirements without increasing liability protection.
- Setting Up LLCs for Multiple Properties: If you own several properties, establishing individual LLCs for each property can offer further protection, though this varies by state fees and property type.
- Consult Both Your CPA and Attorney: Legal setups like LLCs are an intersection of law and finance, so getting insights from both legal and accounting perspectives can ensure the structure is both compliant and tax-efficient.
Business owners, particularly those with real estate holdings, benefit significantly from simple steps like setting up LLCs. Not only does it add a layer of liability protection, but it’s also a one-time cost of $500 that could save you thousands in a lawsuit.