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Do Limited Liability Companies Need Insurance?

Do Limited Liability Companies Need Insurance?

It is a common misconception when setting up a Limited Liability Company, or LLC: the very name says liability is limited. Therefore, no insurance is needed, right? Wrong. While LLCs do offer some protection, it doesn’t negate the need for insurance. Let’s examine why. What Is An LLC? An LLC is a form of business ownership that is designed to protect the personal assets of its managers and members from business liability. The structure itself is easier to maintain than a corporation, as there are no board meetings required or articles of incorporation to be filed. Do LLCs Really Limit Liability? LLCs limit liability in certain ways. If the LLC defaults on a loan, the individual LLC members and managers may not be sued personally on behalf of the LLC due to the corporate structure. Piercing the corporate veil proves to be more difficult than a corporation since there are fewer hoops for LLCs to jump through, so less opportunity for mistakes to be made. While this does offer protection to the members and managers of the company in the event of a lawsuit, it does not protect the LLC from being sued. Does that make a difference? What If My Company Gets Sued? The structure of the LLC protects the individual members and managers from personal liability for corporate decisions, which is a good thing. However, the LLC cannot protect itself from being sued simply by being an LLC. For instance: If you own a small retail shop and someone falls and gets injured while on your premises, they may sue your company. If someone becomes ill or...