- There are a lot of myths out there when it comes to LLCs.
Certainly, forming and operating a business
as an LLC can have a lot of benefit,
but it is not the end all be all
when it comes to business ownership
I've made a lot of videos about the good things
that an LLC can do for you and your business.
But now I'm gonna tell you about four things
that an LLC won't do.
(bright music)
Hi everyone, I'm Attorney Aiden Durham
with the 180 Law Co. in Colorado.
And welcome back to All Up In Yo' Business.
Before we get into it,
don't forget to like subscribe and share,
and check the description
for links to additional information and resources,
including a link to download my free new business checklist.
All right, so we've heard a lot about
what an LLC can do for you or your business.
Let's talk about what it won't do.
The first thing an LLC is not going to do for you
is create some instant magic investment vehicle.
I've seen this randomly
in places online on social media and stuff
where a parents want to invest money,
save money on behalf of their kids,
create some savings or some investment for their children,
which is great.
But then I see people say,
I'm gonna go form an LLC for my child
as if this is some kind of money saving tool
or investment vehicle
that's just gonna grow its value.
An LLC, forming an LLC by itself is holds no value.
It's not gonna do anything for you.
Certainly, the business operation within the LLC
can create value and can be an investment,
but an LLC on its own,
isn't just this magical value
creating income generating thing.
If you're not gonna have some business function
within it, an LLC really has no value at all,
or, oh, I have this excess money to put away.
I'm gonna go form an LLC with it.
Without any plan in mind as to what I'm gonna do
with the LLC after that?
I'm just gonna go form an LLC, what for?
It's not gonna do you any good,
unless you plan to actually, you know,
operate some kind of business,
generate some income within it.
The second thing an LLC won't do for you
is save you on taxes.
Again, I see this all the time.
I'm gonna form an LLC.
I'm gonna operate my business as an LLC
so I can save on taxes.
The IRS for federal tax purposes,
doesn't recognize an LLC.
An LLC is a business entity
that's recognized by states,
but there is no tax status for an LLC.
A single member LLC is considered a disregarded entity
and a single member LLC is taxed as a sole proprietorship.
The way the IRS sees it,
a sole proprietorship and a single member,
LLC are exactly the same.
Same with multi-member LLCs,
they disregard the LLC
and its taxed as a partnership.
So a partnership and a multiple member LLC
are taxed exactly the same.
You don't magically get some tax reduction
or other deductions or deductibles
available to you solely by forming an LLC.
Income taxes are exactly the same
with or without an LLC.
Now the one little caveat to that,
the one instance you might be able to get some tax savings
by virtue of operating as an LLC,
is if you change your tax election
to be taxed as an S corp or a C corp,
depending on the circumstances and your specific situation
making one of those tax elections
might save you on taxes in the end.
But again, there is no LLC tax status.
So without making one of those tax selections
to be taxed as a corporation,
you're still gonna be taxed as a sole proprietorship
or partnership, and therefore, no change in taxes.
The third thing an LLC won't do for you
is give you any kind of trademark protection.
Trademark rights are based on use
of a trademark in commerce,
whether it's your business name or a logo or a slogan,
the rights in those trademarks
come up by using them in commerce,
in connection with your business.
Now notice, I didn't say any of those rights
come from forming an LLC
or a corporation for that matter.
Registering a business,
whether it's registering a DBA or an LLC or corporation
on its own does absolutely nothing to protect a trademark
or your rights in the trademark.
You can form an LLC with your business name,
but it's only once you start actually
doing business under that name,
that it becomes a trademark and you have any rights in it.
The only real way to protect your trademark rights
or protect a trademark is to, number one,
use it as a trademark and then better yet
register that trademark with the USPTO.
That actually gives you some benefit
and increased rights in your trademark.
And lastly, the number four thing
that an LLC is not going to do for you
is avoid any and all liability of any kind.
Of course, the main benefit that we get
from operating as an LLC
is separate liability for us as an individual
and the business.
That's the main purpose is to insulate us,
the business owner, from liabilities of the business.
But that doesn't mean that the LLC is going to avoid
any liabilities to the business, of course.
And there is always the possibility of piercing
the corporate veil,
where you could still be personally liable
for debts or liabilities of your business.
But even outside of that, there are situation
where we, as the business owner,
can be responsible for some liability.
I mean, number one, if we agree to it
often with a business loan or a credit card,
or for signing a new lease,
the lender or the landlord might still require
a personal guarantee.
So if the LLC goes under,
if the LLC doesn't have any money,
they still have a person that they can go after.
So of course, if you're personally agreeing
to be responsible for something,
then the LLC isn't gonna completely get you out of that.
But then there are also instances
where we can still be personally responsible
if we act fraudulently,
if we commit some kind of fraud,
or if we are in ourselves negligent
even if we're acting on behalf of the business.
I'll give a good example of that.
In my industry, so us attorneys,
we have to have professional liability,
insurance coverage, malpractice insurance.
That's a pretty common insurance
that a lot of different professions wanna have.
If you're giving advice to somebody
in a professional capacity,
then typically we have some kind
of malpractice insurance for that.
So you might think,
well, why would I need malpractice insurance?
I'm operating as an LLC, if someone wants to sue me,
they'll be suing my LLC.
Well, no.
Professionally, I'm still liable for the advice that I give.
If I give a piece of advice to my client
and that advice was bad and they were damaged from it,
they can potentially sue me for malpractice.
And that still is against me professionally
and has little to do with my LLC.
So that's just one instance of where you can still be
personally or professionally responsible
for something that you do on behalf of your company.
This can also come up with negligence claims,
I know if someone's injured at your office
and it's because you individually acted negligently.
You could potentially still be responsible for that damage.
The point here is that an LLC,
isn't going to protect you from all avenues of liability
or all responsibility completely
when it comes to your business.
It protects you from the debts and the obligations
of the LLC,
but that's not like an impenetrable force
that no one can ever touch or get pass.
So of course, an LLC has a lot of benefits.
The primary one being separation of liability
in most instances for the debts and liabilities
of the business,
but it's not gonna protect you from everything.
It's not gonna magically grow some valuable instrument
or investment vehicle for you.
In many cases, it's not gonna save you much on taxes,
if anything, and it's not
gonna do you any good when it comes to trademark protection.
That's why if you're really interested
in getting an LLC,
before you jumped the gun,
it's a great idea to talk to an attorney
to make sure this is the right move.
And then you're gonna get the benefits from it
that you think you're gonna get.
That's all for this episode folks.
Drop a comment below.
Let me know what you think.
And again, don't forget to check the description
for links to additional information and resources,
including a link to download my free new business checklist.
Thank you all so much for watching.
I'm Aiden Durham, and I'll see you next time.
(upbeat bright music)