The best approach to take when starting a business is to form an LLC from inception and to conduct all business activity through the limited liability company.
However, many business owners start their businesses as sole proprietorship. We get questions from sole proprietors who have been operating without legal liability protection for over 20 years who now want to organize an LLC for protection and other benefits.
An LLC does not exist until the state of its formation processes a compliant filing and issues an official certificate of existence for that business entity. Any business conducted prior to its existence is not protected by the LLC lawyer of protection.
What this means is <!– /* Font Definitions */ @font-face {font-family:”Cambria Math”; panose-1:2 4 5 3 5 4 6 3 2 4; mso-font-charset:0; mso-generic-font-family:roman; mso-font-pitch:variable; mso-font-signature:-1610611985 1107304683 0 0 159 0;} @font-face {font-family:Calibri; panose-1:2 15 5 2 2 2 4 3 2 4; mso-font-charset:0; mso-generic-font-family:swiss; mso-font-pitch:variable; mso-font-signature:-1610611985 1073750139 0 0 159 0;} @font-face {font-family:Consolas; panose-1:2 11 6 9 2 2 4 3 2 4; mso-font-charset:0; mso-generic-font-family:modern; mso-font-pitch:fixed; mso-font-signature:-1610611985 1073750091 0 0 159 0;} /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-unhide:no; mso-style-qformat:yes; mso-style-parent:”"; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:”Calibri”,”sans-serif”; mso-fareast-font-family:”Times New Roman”; mso-bidi-font-family:”Times New Roman”;} p.MsoPlainText, li.MsoPlainText, div.MsoPlainText {mso-style-noshow:yes; mso-style-priority:99; mso-style-link:”Plain Text Char”; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.5pt; font-family:Consolas; mso-fareast-font-family:”Times New Roman”; mso-bidi-font-family:”Times New Roman”;} span.EmailStyle15 {mso-style-type:personal; mso-style-noshow:yes; mso-style-unhide:no; font-family:”Times New Roman”,”serif”; mso-bidi-font-family:”Times New Roman”;} span.PlainTextChar {mso-style-name:”Plain Text Char”; mso-style-noshow:yes; mso-style-priority:99; mso-style-unhide:no; mso-style-locked:yes; mso-style-link:”Plain Text”; mso-ansi-font-size:10.5pt; mso-bidi-font-size:10.5pt; font-family:Consolas; mso-ascii-font-family:Consolas; mso-hansi-font-family:Consolas; mso-bidi-font-family:”Times New Roman”;} .MsoChpDefault {mso-style-type:export-only; mso-default-props:yes; font-family:”Calibri”,”sans-serif”; mso-ascii-font-family:Calibri; mso-hansi-font-family:Calibri; mso-bidi-font-family:Calibri;} .MsoPapDefault {mso-style-type:export-only;} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.0in 1.0in 1.0in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} –> that an LLC does not protect an owner from any existing personal liability he is subject to prior to the existence of the LLC. Those obligations remain personal.
An LLC does not cover prior existing business debt entered into by an owner in his personal capacity (operating as a sole proprietor) and, even after an LLC is formed, if an owner agrees to guarantee or otherwise be personally liable for a business debt, that personal agreement is not changed by he fact that there is an LLC.
It is still recommended that any sole proprietor form an LLC and transition his or her business to it as this will stop the potential liability with respect to future business activity. First form an LLC and then transfer business assets and contracts to the LLC.
Also, after you form your LLC, there may be a way for you to terminate your existing debt and contract arrangements and have them re-entered into by your LLC. This of course depends on the other party’s willingness to do this. You should seek the advice of an attorney to advise you on the details for how to do this.
