How Does Asset Protection Work in an LLC?


A limited liability company offers limited liability asset protection. This type of asset protection means that the liability is limited to whatever assets the owner has invested in the LLC, essentially, only all business assets. These business assets can include, but are not limited to, initial, investment, or retained earnings.

Because the liability is limited to what the owner of the LLC has in the business, it provides that the personal assets of the owner are protected. This means that in the case of a lawsuit, the LLC is the entity that would be sued.

How does taxation work in an LLC?

The owners of a limited liability company enjoy the flexibility of being able to choose how the LLC is treated as a taxable entity. An LLC enjoys pass through taxation where the company’s net profits/income is passed through the legal entity and onto the personal tax of the member(s). A single member LLC can be taxed as a sole proprietor. A multi-member LLC can be taxed as a partnership. The members can elect to be taxed as a C-corporation or an S-corporation.

As a sole proprietorship, any taxes incurred by the LLC will be passed on to the members’ personal IRS tax. As a partnership, any taxes incurred by the LLC will be passed to those members’ in the business. This means that the members would be taxed as a regular partnership and all members handle the business related taxes on personal returns.

As a C-corporation, the LLC is taxed as a business entity and the business taxes are not passed through to the members’ personal taxes. This method allows for more savings opportunities through business tax deductions. Moreover, it separates a business owner’s personal assets and his/her business assets.  As an S-corporation, all the taxes from the business activities are passed to the personal taxes of the LLC members. This is very similar to a sole proprietorship. This method prevents double taxation and allows the LLC members to classify themselves as employees.

EPGD Business Law is located in beautiful Coral Gables, West Palm Beach and historic Washington D.C. Call us at (786) 837-6787, or contact us through the website to schedule a consultation.

*Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*

Share this post

Eric Gros-Dubois

Eric P. Gros-Dubois founded EPGD Business Law in 2013 and is the current head of the firm’s corporate, estate planning, and tax practice, and manages the firm’s Washington D.C. office. With a JD and MBA, and a specialization in finance, Eric is able to step back and view the legal world through a commercial lens while also acting as a trusted business advisor for his clients. He does his best to be solutions oriented, and tries to think like a business owner, not just a lawyer.


*The following comments are not intended to be treated as legal advice. The answer to your question is limited to the basic facts presented. Additional details may heavily alter our assessment and change the answer provided. For a more thorough review of your question please contact our office for a consultation.

Leave a Reply

Your email address will not be published. Required fields are marked *



Contact Us

"*" indicates required fields