One Common Thing The Internet Gets Wrong About LLCs

by | Jun 21, 2020

News flash: the internet gives a lot of advice, but it’s not always good

One of the first things you need to think about when starting your dog training business is what type of business entity to use. If you look on the internet, in a bookstore, or in the library for information about what types of business entities there are and why to choose one over the other, there is lots of advice.

Lots and lots of advice. Maybe too much advice.

And because that advice has to be general enough to apply to lots of different circumstances, it is not always useful to help you figure out what you – a dog trainer trying to start a local business doing dog training – should do. And sometimes, information that is too general can be misleading in specific circumstances.

Advice that is too general can be dangerous

One piece of general advice that I see a lot that can lead dog trainers astray is the idea that an LLC will protect your assets by limiting your liability for claims or lawsuits.

A lot of sources recommend that small business owners form an LLC, and one of the reasons they say an LLC is good is for “asset protection.” For example, one blog by an online company that helps folks incorporate LLCs contains this quote:

“And most importantly, by setting up a Legal Entity you are keeping your personal assets safe. In the event of a lawsuit, creditors can only go after the assets of the Legal Entity, and that is all they can get . . .  They cannot get to your personal assets.”

Unfortunately, this doesn’t tell you the whole story.

Here’s how an LLC works IRL

Here’s how it works in real life: as a dog trainer with an LLC, it would be your LLC that would enter into business relationships, including contractual relationships like the agreement you have with your clients to provide services and get paid. You have to remember to use your business name and sign on behalf of the LLC, not individually. If the client later had a dispute over payment or the services you provided, their claim would be against the LLC and the LLC’s assets (most likely just a bank account), not against you and your assets (your house, your investments, etc.).

That’s the way it’s supposed to work, but there are exceptions.

For example, as a dog trainer, the bulk of your business is providing dog training services, and so your biggest risk is that you will be handling a dog or giving advice to someone else handling a dog, and the dog will bite or otherwise injure someone. In that case, if the person were to sue you, the claim would not be that the LLC did something wrong, but that you personally were negligent, and the fact that you have an LLC will not prevent the injured person from filing a lawsuit against you and your personal assets. So what most people don’t tell you is that if someone files a lawsuit accusing you personally of wrongdoing, your LLC won’t protect you from liability. If you’re an accountant, that’s a pretty small exception, but you are not an accountant.  Your work involves animals; animals with sharp teeth that may be scared or aggressive.

There are other exceptions to the general rule that an LLC will limit the owner’s liability, but there are still good reasons to form an LLC, and there are other measures you can take to protect your assets. Just be sure you are clear on what they are.

DISCLAIMER: This article does not constitute professional tax advice or legal advice. Consult with a tax adviser or legal professional if you have specific questions about LLCs or any other aspect of forming a business entity or risk management.

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