Is it true that a single person LLC does not afford one the legal protections of a partnership or C-corp LLC?
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Is it true that a single person LLC does not afford one the legal protections of a partnership or C-corp LLC?
Asked on June 8, 2015 under Business Law, Colorado
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 9 years ago | Contributor
No, that is not true. First, any LLC offers more protection than a partnership, since with an LLC, there is a separate legal entity (the LLC) which buffers owners from liability, whereas in a partnership, there is no separate legal entity--there are just the partners.
Second, the issue is not whether something is a single person LLC, a multi-person LLC, a C-corp., or an S-corp.; the issue is whether the LLC or corporation has a legitimate, independent existence or whether it is just a "sham" and its funds co-mingled with that of the owner(s). If it's a legitimate LLC, then even a single-person one will protect you. To keep it legitimate,
1) Do NOT mix its funds with your personal funds--keep them separate.
2) Track profit, loss, expenses, etc. carefully and be able to back them up.
3) Only spend LLC money on LLC needs.
4) Use the LLC to actually conduct some business.
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