However, after the initial filing, they stop and neglect to finish the whole process of forming an LLC. This puts them at risk for losing the protection for their personal assets they were trying to get by filing the LLC in the first place.



How do I know this? Because I'm one of the people they often call to fix the problem.

The process of setting up an LLC involves several important steps. It's not hard, but each step is essential. Before explainign these steps, I first want to explain how the liability protection of an LLC works.

When a lawyer sfiles a lawsuit against an LLC, they often sue the individual owners also. They do this because they know that most small businesses operated as an LLC do not have sufficient assets in the business to pay off a legal judgment so they go after the individuals and their personal assets also.

However, if the owner of an LLC can prove that that they organized and operated your LLC as a separate legal entity under the law, they are entitled to protection. This is called limited liability protection. It's the long established law that protects your personal assets from judgments against your business.

Limited liability protection can provide a layer of protection between your business and your home, vehicles, retirement benefits, savings, recreational vehicles and other personal assets. This protection is one of the main reasons why business lawyers, like myself, strongly urge people to operate their business in the form of an LLC or corporation. However, this protection is not automatic. It requires the LLC to be set up and operated properly. If not, you leave yourself wide open to personal liability.

It's no secret that we live in a lawsuit crazy society where many people are willing to sue at the drop of a hat. Unfortunately, if you're in business, you make an easy target. A lawsuit can come from disgruntled former employee, an unhappy customer, an injured person or a business competitor. The results can be financially devastating to you regardless of the source. Please don't make the mistake of thinking it can't happen to you. Believe me, it can. I've seen it.

The good news is that it's fairly easy to complete the process of forming an LLC. By doing so, you place yourself in a much stronger position to protect your personal assets. To see if you have completed the process of organizing an LLC, just answer the 6 questions below. If you answer no to any of the questions, then you haven't fully completed the process:

Have you filed the initial Articles of Organization with the State Filing Office?

Have the members or owners of the LLC adopted or signed an Operating Agreement?

Have you conducted some form of an organizational meeting and prepared written minutes or other documentation?

Have you prepared written documentation showing the percentage ownership (or sharing ratio between members of the LLC)?

Have you obtained a new Employer ID No. (EIN) for the LLC from the IRS?

Have you set up a new bank account for the LLC that is separate from your individual bank account?

Each step of the process is important to help establish or prove that you have fully organized and are operating your business as a separate legal entity. Operating your LLC as a separate legal entity is what entitles you to the limited liability protection of the LLC structure or form.

You can read more about these steps in the Special Report "Seven Essential Steps in Setting Up Your Own LLC."