You are proud of yourself. You went on-line at the Secretary of State’s website and filed your Articles of Organization. This means that you have limited your personal liability right? Well … maybe.
People rarely understand that what they do AFTER filling Articles of Organization is as important as the filing itself.
You are living under a rock if you think that one of your creditor’s attorneys will say this:
“Oh, my, she has an LLC. I guess there’s no way to hold her personally liable.”
NOT …….
There will be a search to see if you have maintained the appropriate separation between you and your company. You formed an entity, and now the question is whether you acted like an entity. If not, you’ll be a target … personally.
What must you do to protect yourself? Keep these reminders handy:
REQUIRED:
In Missouri, if you are a sole owner/member LLC, you MUST have a written “operating agreement.” Must I have an agreement with myself, you ask? Answer: yes. You must have written document that spells out the organization of your company, despite the fact that you may fill most, if not all, of the responsible positions in the company.
NEVER run your LLC out of your personal bank account. Be certain that you have a separate bank account for your LLC. Best if you get an EIN for your new LLC (see below).
NEVER mix your personal funds and your LLC’s funds. If you have to support your new venture with personal funds, then be certain that you transfer/deposit your personal funds into your LLC’s bank account. Then make certain that you enter this deposit as a capital contribution or a loan on the company’s books.
NEVER deposit monies from a company customer into your personal bank account. Even if you are paying yourself back for something, never by-pass your company bank account with incoming revenues.
NEVER sign company contracts or documents with your name only. If you are manager managed you should sign all company items: “Superior Company, LLC, by: Bob Smith, Manager” (or other title). If you are member managed, then you should sign: “Superior Company, LC, by Bob Smith, Member.” In all cases, if you just sign as “Bob Smith” then you may be personally liable.
NEVER take money or property from your LLC without documenting its purpose. If the company loans you money, enter it as a loan. If it’s compensation, book it as compensation. Ditto for profits/dividend distributions.
NEVER use a name that is different from the name in your Articles of Organization unless you file a fictitious name registration with the Missouri Secretary of State’s office. For example, don’t use “Superior Company” instead of “Superior Company, LLC” unless you register that shortened version. Here’s the link.
AVOID, in marketing and print ads, using references to you personally instead of the company. Better to say that the company performs great work, e.g. our company has the best painters in St. Louis … not “I’m the best painter in St. Louis.”
RECOMMENDED:
Apply for an EIN even if you are taxed as a sole proprietor and have no employees. If you are taxed as a sole proprietor and do not have any employees you are not required to apply for an EIN, which means that you must use your social security number for various tax related identifications. But do you want to routinely disclose your Social Security Number?
Add your spouse as an owner/member. Sole Members in most states (including Missouri) do not have charging order protection but members of a multi-member LLC’s do. Of course “multi” means more than one. So, you and your spouse as members of the LLC will qualify for charging order protection. Do not issue your spouse a 1% ownership interest. This is as transparent as it appears. My advice: not less than 20%.
One Response
Some great advice for people who have set up, or are thinking of setting up an LLC. It is very important to remember that although it is your business, you still need to act as if you are employed by the business.