The Single Member LLC
The Limited Liability Company is a popular business entity because they are easy to run and reduce the personal liability of the owners. Not all LLCs are created the same, however. In most states, multiple member LLCs are afforded more liability protection than the single member LLC, or spoused-owned LLCs in some states.
So what’s a single member LLC owner to do in order to increase liability protection? Watch the video to learn more.
Colin Ley is a Seattle asset protection attorney. He is also the co-founder of LayRoots along with his wife, Shreya Ley.
Single Member LLC Video Transcript
Hi, this is Colin Ley with LayRoots, and I’m going to talk to you about single member LLCs and whether they are safe and protected from outside liability. If you saw our other video or articles talking about inside versus outside liability, a quick recap. Inside liability, liabilities that stem from these business activities within an LLC. Outside liability, also known as personal liability, come from things like car wrecks. If you hurt somebody in an accident, for example.
This is you here, so what we’re looking at is whether these business interests, so in this case Washington LLCs owned by a single member or a spouse owned business. A lot of people know that liabilities that come from within these businesses stay within the business, so this person is protected from them. This other business is protected from them, so basically if the liability occurs within this business it stays within that business. Now, what about outside liabilities?
Less protection from personal liability
In most states, if the LLC is owned by a single person, and also here in Washington if it’s owned by spouses, these businesses are not safe from the liability that comes from outside or personal liability like a car wreck. For example, if you really hurt someone, cause a lot of damage with your car, somebody sues you, if someone is trying to get you pay a judgment they can come after your businesses here, take them over, sell assets, distribute profits, whatever that is. Basically, you lose control of them in order to satisfy the judgment that comes from this outside or personal liability.
A lot of people learn that, and they’re not too happy with it. I know I wasn’t happy when I learned about that quite a while ago. So what can you do to avoid that scenario and protect these business interests from liabilities that might come up from your personal life? What you can do is go to one of those states that have laws on the books that provide additional protection for LLCs owned by single individuals or spouses.
One state I really like is Wyoming. Basically what you do is you’re making a little holding company, so this Wyoming LLC will then become the owner of these two Washington LLCs. Therefore, if a creditor from this outside liability is coming after you they can go after this Wyoming LLC. This LLC blocks them from getting to your Washington LLCs that lets creditors takeover companies and sell them. Wyoming doesn’t allow that. They say the only way that you can get paid is with something called a charging order. So basically any time you distribute profits they may end up going to your creditor, but they can’t come in and takeover the management of the business. They can’t make you sell things, anything like that.
This Wyoming entity provides that extra protection if you’re the single member owner of a business or a spouse owned LLC. That’s something you could do to protect your businesses from outside liability. If you have any questions please hit us up at [email protected] Thanks for watching. Take care.