LLC & a new business question

[electra67]

What is the name of your state? KY

Recently, I just dug my failing business out from the edge of bankruptcy this summer (recession woes since 9/11) and finally paid off all it's credit. 'It' still owes my personal account about 8K (but I doubt I see that again...).

I'm getting ready to make some big purchases, advertising and investments in it to try and jump-start it again. It was suggested to me to turn it into an LLC instead of 'sole-p' so that if this effort flops, the business can declare bankruptcy and not me personally.

I thought this an excellent idea until someone else said that if I LLC-ed, banks/creditors would still 'require' me to 'secure' any loans or credit. Is this true? If so, what's the point in going LLC? I wanted it to protect MY credit... This kills the purpose.

If this it true.... I was planning on starting a second business in another 2 years if my old one recovered and did okay. But could I LLC the first one, go ahead and start the second one, and pit the second one on the first, instead of me? Or would business #2 have to be an LLC also? (still defeats the purpose) I'm very confused on what to do right now.

 

[seniorjudge]

Q: I thought this an excellent idea until someone else said that if I LLC-ed, banks/creditors would still 'require' me to 'secure' any loans or credit. Is this true?

A: This is the case of the golden rule. He who hath the gold maketh the rules. So ask the folks with the dough, not us.

 

[HomeGuru]

What is the name of your state? KY

Recently, I just dug my failing business out from the edge of bankruptcy this summer (recession woes since 9/11) and finally paid off all it's credit. 'It' still owes my personal account about 8K (but I doubt I see that again...).

I'm getting ready to make some big purchases, advertising and investments in it to try and jump-start it again. It was suggested to me to turn it into an LLC instead of 'sole-p' so that if this effort flops, the business can declare bankruptcy and not me personally.

I thought this an excellent idea until someone else said that if I LLC-ed, banks/creditors would still 'require' me to 'secure' any loans or credit. Is this true? If so, what's the point in going LLC? I wanted it to protect MY credit... This kills the purpose.

If this it true.... I was planning on starting a second business in another 2 years if my old one recovered and did okay. But could I LLC the first one, go ahead and start the second one, and pit the second one on the first, instead of me? Or would business #2 have to be an LLC also? (still defeats the purpose) I'm very confused on what to do right now.

**A: It's true. Cash talks and bull.. oh you know the rest.

 

[electra67]

Hmmm... Thank you. Lots to think about...

What ARE the advantages, in you're opinion, about a very small business (actually self employed now - lost all my part timer's in 2002) going LLC?

What if all the 'investments' were on credit cards, already established in the business' name? I got a high limit. My name is on the card also. Would I need that removed? I really don't think I'd need more than 25K for my needs and less than that to start up the second business.

 

[divgradcurl]

Hmmm... Thank you. Lots to think about...

What ARE the advantages, in you're opinion, about a very small business (actually self employed now - lost all my part timer's in 2002) going LLC?

What if all the 'investments' were on credit cards, already established in the business' name? I got a high limit. My name is on the card also. Would I need that removed? I really don't think I'd need more than 25K for my needs and less than that to start up the second business.

An LLC is great for a couple of things. For one thing, you can protect your credit with an LLC, once you establish the LLC's credit. This usually requires that you fund the LLC with sufficient cash so that it can run as an independent entity. If there is enough equity in the LLC so that a bank, or other creditor, can have some recourse against the LLC should the LLC fail to pay its bills, then the lendor would lend in the LLC's name. Once you get to that stage, the LLC can protect your underlying credit and assets.

Also, if the LLC is properly run, and properly funded (or properly insured), then you can protect your personal assets from been used to pay off any debts or judgments against the LLC.

An LLC does provide what it's name implies -- limited liability protections -- but it's not a magic device to throw up a wall between you and a creditor. If you are looking for personal credit and asset protections, your best bet is to work with an attorney who has experience in setting up small businesses, who can review your particular situation and advise you accordingly.

 

[electra67]

Thank you, that's very logical and you've helped me greatly with this decision.

I had an epiphany while thinking this through and decided to go ahead and register the business #1 as an LLC. It still has a lot of equipment to qualify to stand on it's own (I hope). But even better, I can go ahead and start business #2 based on the fact that it already has 70% of it's start-up equipment (it just needs a building, more tools, and some ads). It could 'secure' the first business already, right?

 

[divgradcurl]

It could 'secure' the first business already, right?

As others in this thread have noted, that will depend on the lender.