How Investors Are Protecting Their Assets

When you get into investing and see success, whether it is stocks, REITs, or flipping houses; friends and family may begin to ask for help.  That’s when an LLC is vital, so we talked to Incfile co-founder Nicholas Siha about some of the ways that an LLC can help to protect entrepreneurial investors like yourself.  And Incfile has helped more than 1,000,000 people just like you with business formations since 2004, making them a leader in the space.

The first and main reason to form an LLC when you begin a business, whether it is investing in stocks or a food truck, is to protect your personal property in case you get sued.  LLCs protect your personal assets and only allow the suing party to collect on what the corporation owns, and this includes debts from running the business if things go south.  You cannot control the stock market for example, and if your clients are unhappy, having an LLC can help protect you from having them take your home, which is a possibility if you don’t form a legal entity.  And the same thing applies to a divorce.

Marriages all start off great, and as your relationship grows over the years, so do your assets.  If you and a friend begin investing or starting a company together, but you don’t form an LLC, all of the assets can be put at risk for everyone involved.  By having an LLC, the non-company owner in the divorce will likely only be able to take part of their significant other’s stake.  This protects the company as a whole so that you can continue to build and grow it once the divorce is finalized.  It is a form of protecting you and your business partner’s futures vs. having everything fall apart in the unfortunate event that one of the owners goes through a divorce.  And there are tax benefits too.

When you’re investing as a sole proprietor, you’re going to have to pay pass-through taxes.  But forming an LLC for your investing business lets you choose whether you want to pay via pass-through or get taxed with a corporate tax status.  This flexibility lets you find a path that makes sense for your needs which could lead to additional savings or advantages.  This is because pass-through businesses have to pay a higher share of the tax gap than a corporation which could mean less money for you from your investing activities.  But don’t worry, almost all businesses in the US are pass-through corporations, mostly because they haven’t learned about the advantages of the different business entity types.  And that’s why we exist.

Incfile helps to take the guesswork out of which type of business you should form, and we’ll even act as a registered agent for you.  The added benefit here is that if you don’t have a physical office, you’ll have an anonymous address listed for your business vs. your home address.  This added level of privacy can protect you from angry clients, as well as overly optimistic sales professionals who may show up to your house expecting to close a deal.  

These unknown protections and the confusion around everything from what EINs are to S corps vs. C corps are how we came up with the idea behind Incfile.  We saw an opportunity to simplify the process, and then streamline the way the system works.  Although the actual processing time is based on the backlog with the state, the paperwork and communication can be expedited, and that’s one of the added values Incfile customers get.