Virtual Assistance – Inc. or LLC?

My husband has this cute little piece of paper from this place he calls a “degree.” While I think a business degree is about as common as dirt, his schooling sometimes reveals some pretty amazing things.

Every so often people talk about S-Corps and LLCs and I ask him every time, “Honey…are you sure I’m okay as a sole prop? Should I incorporate or go LLC?” Since I can’t just take a picture and show you all the look on his face….I give you his opinion on the subject…(which, in no way is to be construed or taken as legal advice, please consult your lawyer about any questions pertaining to an LLC or Corporation…thank you….) Oh, and this opinion is specific to the US and the state of Illinois. Your mileage may vary…or not…

The #1 thing you will get sued for (if you get sued) is negligence. If you are your company and vice versa…no corporate veil is going to stop you from getting sued for negligence.

As the owner of a business no amount of corporate protection will help you against something you have personally done.

The best you can really do is to have errors & omissions insurance, a general liability policy and great client relationships.

EXAMPLE: You have organized your practice as an LLC in which you are the only person working for the company. You have hired a sub-contractor to do some work. They made a mistake (were negligent) on a very important document that cost your client money. The client decides s/he wants to take legal action due to this. When s/he decides to sue s/he will most likely sue the following entities:
- The LLC
- You personally
- The sub-contractor personally

If, in litigation, negligence is proven, damages are to be paid by *all parties* found guilty in the suit. So, where does this leave you as the business owner? You will owe for yourself personally AND you will owe what the LLC has to pay. You’re going to have to sue the sub-contractor to get the money back that you owe the client that won the lawsuit!

In my opinion, what forming a corporate veil does is open you up to being sued MULITPLE times instead of once…because there are more entities to sue.

At this point, many lawyers will tell you to just have your LLC go “bankrupt” and start a new one to relieve the damages awarded to the client. The problem? This does not get rid of the damages awarded to the client that they sued you for personally. It also means more lawyer fees to bankrupt your LLC and create another one. It’s also just really shady business practice

If you are not sub-contracting, and a client sues you for negligence…your client can be awarded damages from both you and the LLC/Corporation. This also means you either pay double, or close the LLC and open a new one (still owing the money that was awarded to the client on a personal level)

Many also say an LLC is essential for tax purposes; however you must take into consideration you will still need the same sort of insurance for liability as you would as a sole proprietor and you may be subject to double taxation rules depending on how you have your business organized.

Did I mention this opinion is not in any way to be taken as advice for your particular company or situation? Good. What this is intended to do is make you, as a business owner, think about liability and what you have to lose. A false sense of security from having some letters at the end of your business name should not help you sleep better at night. The relationship you have with your clients and your insurance are the things you should be using to snuggle up with as you drift off into dreamland.

No one should take any kind of legal advice from a blog or a networking forum. The responses and questions are intended to make you think, nothing more. Please, PLEASE seek professional (not Uncle Vinny who helped open that casino in ‘63, either!) help when it comes to your company.