Many existing businesses expand by starting a joint venture or business arrangement with another business or person.  If the arrangement involves an ongoing activity, one of the best methods of creating a structured joint venture is by creating an LLC to house the venture and using the LLC governance processes to create the parameters and responsibilities of the joint venture parties.

Without an LLC, you need to rely on addressing all matters in a general contract.  A limited liability company provides an automatic mechanism for handling ongoing business interactions and activities among several parties.  Because an LLC is subjected to very little formalities and bureaucracy, you can tailor the governance and rules for your particular business transaction.

Also, because the taxes are pass through, you can accomplish the creation of a customized joint venture arrangement without having to worry about additional tax burden or complexity. You can form a limited liability company quickly and should do so prior to starting any joint venture activity.

Generally, when this question is asked it is two fold.  One, how are previously purchased equipment or previously incurred debt transferred to a limited liability company when an LLC is created later for a business.

Second, is it possible to not be personally liable for that debt after the transfer?

Question #1:  Yes, you can transfer any assets or debt to your LLC. You transfer assets with a document called a Bill of Sale and you assign debt with an assignment of the debt contract and obligation.  The LLC needs to agree to undertake the debt obligation by having its members formally approve this transaction.  The approval should be documented with a written resolution or consent.

Question #2: No.  Once you personally agree to an obligation, you cannot later get rid of that personal obligation by transferring he obligation to an LLC.  You remain liable.  The only way to change this is to get the other party (e.g., the lender or vendor) to agree to take you off as a liable party. In most cases, that party will never agree to this- it just does not make business sense.

The best approach is to create an LLC early and have your limited liability company be the contracting party or the borrowing entity from the beginning.  Please note that many banks will not lend money to a brand new LLC with no operating or credit history so you may end up being asked to personally guarantee the loan in any event.  Banks are conservative.  It is still worth your LLC being the borrowing entity (Even with the guarantee) as this is how you begin to establish credit for your LLC business.

Learn more about the limited liability company at The LLC Expert.