Limited Liability Company

Is an LLC for a Sole Proprietor Necessary?

The name Limited Liability Company means exactly what it sounds like: a company which limits your liability as an owner.

Many people have heard that an LLC will help protect your personal assets from judgments and creditors of a business. That is absolutely true and is one of the major advantages of an LLC. If you are the only member and only employee of the LLC, then it isn’t that simple.

The biggest advantage of an LLC—limited liability—may not work for you if you are a sole proprietor. Every person is responsible for their own negligence. If you are driving through a parking lot and accidentally knock off someone’s side-view mirror, you’re liable. Just because your truck is owned by your LLC—or you were currently on the job—doesn’t change the fact that you’re still liable. Limited liability cannot protect you from liability for an accident you cause.

This is not true, though, if you have someone working for you. If an employee knocks off someone’s side-view mirror, the employee and the employer are liable. For something trivial like breaking a side-view mirror, this isn’t a major issue. However, imagine your employee gets in an accident resulting in a $500,000 of liability. As the employer, you may be responsible. If you are a sole proprietor, then your personal assets may be subject to this judgment. As an LLC, though, your personal assets are protected.

Some business owners believe they must have an LLC or corporation to open a checking account in the name of the business. That is not the case! As a sole proprietor you can secure both the right to protect the name of your business and can apply for the tax ID number needed to open a checking account.

It’s important to discuss with your attorney if you are planning on starting a business. Our experienced business law attorneys can help you protect the name of your business, determine the appropriate legal structure for your business, reduce unnecessary startup costs, and protect your personal assets. Schedule an appointment with one of our business law specialists by calling (402) 858-0996.