Using an LLC form your business is really about asset protection. It really does not matter how much money your business is making, you can always be sued and lose lots of money and assets.
A recent example I am aware of involves Susan Jackson. She started a business selling marketing consultation services to businesses looking to sell online. She was only in business for 4 months and was not making any profits yet. She had signed up less than 10 customers. 4 months into her business, she gets legal papers delivered from an unhappy customer suing her personally for allegedly providing unlawful advice that caused the customer damages in excess of $30,000 dollars. If Susan had a limited liability company, it would be her business being sued not her personally.
Now, there are extreme cases of the above example as well. Some sole proprietors have found themselves liable for million dollar obligations that there insurance policies do not cover. In these cases, the business owner has to sell his home, and liquidate his personal savings for business related obligations. The LLC can help avoid business problems becoming personal ones.
Another common example is the trigger happy new business owner who signs onto long term contracts committing to substantial orders for supplies or products he is going to use to make his business successful. If his business is a sole proprietor business, he is on the hook personally for these contracts. On the other hand, if he forms an LLC and the LLC enters into the contracts, it is the LLC who is the business and is on the hook for contractual obligations.
Many mistakenly think the decision of whether to form an LLC relates to the size of the business. This is wrong. It relates to protecting what you own (your home, savings, cars, jewelry and other valuable assets). Also, starting a limited liability company later will keep you exposed to everything that happened before. Liability protection only starts on the day the LLC is formed.
