LLC stands for limited liability company, and that is the primary purpose for forming such a legal entity. When you enter into a business transaction as an individual (aka sole proprietor), if somebody decides to sue you, all of your personal assets can be subjected to satisfying the law suit. The idea behind an LLC or Corporation is that people are doing business with that entity (the LLC, for example). When a true separation is maintained between the LLC and its members/owners, the LLC can only lose its assets… but not the unrelated assets of its owners.
The cross-liability of one LLC with multiple assets or businesses
Jeremy forms JAH LLC to buy and hold apartment buildings. He buys Apartment Building A as well as Apartment Building B & Apartment Building C.
An accident occurs and somebody gets hurt in the common area of Apartment Building A. This person sues the owner of the buildings, JAH LLC.
Personal assets – Jeremy’s personal assets are protected from exposure to this law suit (except for what he contributed into JAH LLC).
Apartment Building A – All of the assets of JAH LLC can be exposed to satisfying the law suit. This includes bank accounts relating to Apartment Building A and even the real estate itself.
Apartment Building B – All of the assets of JAH LLC can be exposed to satisfying the law suit. This includes bank accounts relating to Apartment Building B and even the real estate itself.
Apartment Building C – All of the assets of JAH LLC can be exposed to satisfying the law suit. This includes bank accounts relating to Apartment Building C and even the real estate itself.
The additional protection of multiple LLCs
Jeremy forms JBX LLC to buy and hold Apartment Building X. He forms JBY LLC to buy and hold Apartment Building Y. He also forms JBZ LLC to buy and hold Apartment Building Z.
An accident occurs and somebody gets hurt in the common area of Apartment Building X. This person sues the owner of the building, JBX LLC.
Personal assets – Jeremy’s personal assets are protected from exposure to this law suit (except for what he contributed into JBX LLC).
Apartment Building X – All of the assets of JBX LLC can be exposed to satisfying the law suit. This includes bank accounts relating to Apartment Building X and even the real estate itself.
Apartment Building Y – The assets of JBY LLC , including Apartment Building Y real estate, are protected from exposure to this law suit because JBY LLC was completely unrelated to the incident with which the law suit is concerned.
Apartment Building Z – The assets of JBZ LLC , including Apartment Building Z real estate, are protected from exposure to this law suit because JBZ LLC was completely unrelated to the incident with which the law suit is concerned.
The liability protection of any LLC is only in effect if the LLC is properly maintained as its own separate entity. The asset protection of multiple LLCs for multiple assets is more useful in some situations than others. Stay tuned:
More posts to come soon…
Liability of Real Estate Ownership
Entity Maintenance
