An LLC provides liability protection from two different angles. First, an LLC protects its members from any liability generated by property owned by the LLC. For example, if an LLC is formed and a rental property (such as the dentist’s office building that is leased back to his/her practice) is held by the LLC and later someone is injured on the property, and sues the owner, it is the LLC that gets sued. Any liability belongs to the LLC. Only the assets owned by the LLC, in this case the building, are available to the plaintiff if the lawsuit is successful. The other assets owned by the members (probably one or more of the dentists) of the LLC are not available to the plaintiff.
Second, the assets owned by the LLC are protected from any liability of any member. For example, assume that, as in the previous example, multiple dentists have formed an LLC to own the building that the practice operates from. Now, if one of the dentists is sued for malpractice and the suit is successful, the office building is protected.
In basic part, we are separating the dentist’s important assets through a very basic and cost efficient asset protection tool (the LLC) – such that we mitigate a plaintiff’s ability to reach these separated assets. I’ll talk more about more developed LLCs strategies, and the use of multiple LLCs or Series LLCs below.
