An employee negligently overlooks water on the floor of your office or warehouse causing a client or customer to slip and sustain severe injuries. The customer wins a large judgment against you personally because you are the owner and employer. Not a nice thought, right? What can you do to protect yourself in such a case?
As owner/employer of a Louisiana business, you want to avoid paying the judgment with your personal funds should there not be enough money or assets in your business. You want to shield your personal assets, such as your home and other personal property and investments. To do this you must limit your liability.
What is the shield to protect your personal assets from the claims of injured persons and creditors?
It is corporate personality, becoming a corporation or limited liability company (LLC), to own and conduct your business enterprise.
The formation of a Louisiana corporation or LLC will insulate your personal assets from the grasp of a business creditor or someone who wins a lawsuit against the business, because once properly formed the law deems the corporation has legal personality completely separate from you, meaning it has its own rights and duties, with its own distinct assets and liabilities separate from those of its owners.
For example, as owner of an incorporated business, you have the right to personally draw profits from your business. Should you serve the company as a stockholder and an employee, you are entitled to a salary for your labors as an employee, as well as entitled to receive dividends on your stock as a shareholder, those payments becoming your personal assets. Yet, should the corporation become unable to pay its debts, income received from the business, which is now part of your personal assets, are shielded from the creditors of the business entity. Only assets that are in the name of the corporation/LLC may be seized by its creditors. And, when all of those assets are gone, there is nothing creditors can do.
When should you form a corporation or LLC for your Louisiana based business?
The most convenient time to form an LLC or a corporation is at the outset of a business venture. However, a business begun as a sole proprietorship and even though started with several persons as owners can be incorporated at any later point.
Incorporating a business enterprise, or organizing it as an LLC, can be critically important — since this one business decision could preserve personal assets you may have spent two or more decades accumulating.
Is whether or not to incorporate your business really a question?
Original Author: Paul J. Breaux
Edited By: James P. Breaux