Limited Liability Insurance for Limited Liability Company (LLC)

Limited Liability Insurance for Limited Liability Company (LLC)


Life is full of uncertainties. As an owner of a business, it is in your best interest to protect your personal assets in case your business is taken to the mat with a liability insurance claim or lawsuit in the worst case scenario. There are many issues that your business may encounter in the business world, whether you own a small business or big corporation, you might want to protect your personal assets in case your business goes under.

What is LLC?

Limited liability is a way to ensure that a person who is engaging in business does not put his personal assets at risk in case the business fails. The best way to explain LLC is “you risk only what you invest”.

LLC combines the benefits of both corporation and partnership; it is a relatively new type of business entity which first started in Wyoming in 1977. Anyone who has interest in an LLC is known as “member” rather than “shareholder”. The liability that the members of LLC are exposed to is only limited to their investment in the LLC. This implies that any partner, investor or members of LLC cannot be held personally liable for company debts or any unfulfilled company obligations by law except they have stood a personal guaranty.


Limited Liability Exceptions

LLC serves as a barrier between your business and personal assets, however, there are things you do while performing your work which LLC cannot protect you from such as:

  • You fail to manage your business taxes properly
  • You injure someone as result of your own mistake
  • You personally guarantee a business debt or loan
  • You engage in a crime or fraud or reckless behavior that has devastating effect on your company
  • You mix your personal and business accounts together.


How Do You Form An LLC?

In United States, LLC is formed by applying and filling the “Articles of Organization” with the relevant secretary of state. The “Articles of Organization” is very simple, brief and it only provides the basic information required with respect to the name of the company, the address of the company, the manager(s), the service provided by the company and the members of the LLC.

LLC is structured a bit like partnership. It can be manager-managed or members-managed. If it is manager-managed, the manager handles all of the day-to-day business operations while the members only decide on major financial and business decisions. In the other hand, if it is members-managed, all members will have an equal vote and decide between themselves on financial policies and major business operations.


Pros and Cons

There has been much talk about the benefits of making your business as a limited liability company (LLC). It is important that you understand the advantages and disadvantages involve before venturing in this type of business structure.

The Advantages

More Flexibility: You will enjoy more flexibility of being taxed as partnership, sole proprietor, S corporation or C Corporation.

Cost Effective: There is less paperwork and cost of filing involve in this type of business structure.

Investors: You can form an LLC with just one person; you can as well form it with unlimited number of members.

Limited Liability: The members of LLC are protected from most of the liability if the company runs into debt or legal issues.

Perpetual Existence: An LLC, just like a corporation has a life of its own. This implies that it can continue to exist even when the owners die or sell-off their shares.

Less Compliance Issues: Unlike corporations, an LLC in most states doesn’t require board of directors or annual meetings.


The Disadvantages

Restrictions: The members of an LLC are restricted from paying oneself.

Raising Capitals: Investors prefer putting their money into a corporation, so it can get hard for an LLC to raise financial capital

Additional Taxes: In states such as New York, Texas, California and others, LLCs are required to pay a franchise tax or “capital values tax”.


The Main Differences Between A Sole Proprietor & A Limited Liability Company

There are many legal ways to structure your new business such as S Corporations, Limited Liability, Sole proprietorship or partnership. Understanding these business structures, the cost involved and their financial implications will help you make informed decisions when starting your business.

Here are the major differences between sole proprietor and limited liability Company;

Sole proprietorship is a business that is own and run by one person, the business is unincorporated and ceases to be a sole proprietorship when the owner decides to create an LLC.

  • Ease and Costs of Formation

Sole proprietorship is the most popular type of business entity in the United States. When compared to an LLC, the Sole proprietorship is easy to form. Moreover, it is less complex, less expensive and requires few paperwork to get it up and running.

LLC is more difficult to start compared to sole proprietorship. You need to register with appropriate state agencies; you must draft and also file “articles of organization”. Before starting an LLC, you need to pay a filing fee which can run into hundreds of dollars in some states.

  • Number of Partners

Sole proprietor like the name sounds, is made up of only one individual, an LLC can have unlimited number of members.

  • Raising Capital for Your Start-Up

A sole proprietor needs to source for capital to start the business on his own. He may use his personal assets as collateral to receive loan. He can as well borrow from friends and families and risks his personal assets when his business fails.

An LLC has many members who can pool their resources together and also reach out to a wider network of potential business contacts to get the capital to start the business. Besides, the members’ assets are not affected when the business fails.



  • Taxation of Your Business

A sole proprietor’s income is normally taxed based on an individual income tax return. An LLC can choose to be taxed as Sole proprietorship, partnership or S corporation.

  • Your Role in Daily Business Management

You are your own boss when your business is structured as sole proprietorship. You make the important financial and business decisions.

For LLC, all members participate when it comes to taking important financial and business decisions. Members have to decide how a business is run. They can run it together or appoint a manager to take care of day-to-day running of the business.

  • Risks of Personal Liability

You and your business are seen as one and the same under the sole proprietorship. This implies that you have unlimited liability for every debts and legal liabilities of your sole proprietorship. You risk your personal assets under this business model.

You can lose only what you invest in LLC. When the business fails, your personal assets remain intact. You are not liable for the company’s debt or unfulfilled obligations.


How much is Limited Liability Insurance?

If you are just opening your business, you are probably wondering how much it will cost you to get limited liability insurance. You need to cover range of risks and potential incidents such as equipment damage, accidents, injuries, theft and liability claims.

What you should know is that your business insurance rates are unique to your company and what your company do. This explains the reason why there are no average business liability insurance costs for both large and small businesses.

  • A sole proprietor might pay $500 annually for general liability insurance while a small firm might be ask to pay more than $3000 per year for the same insurance.
  • A sole proprietor who designs clothes in his home office faces limited liability concerns but a landscaper due to an increased risk may pay upward of $15000 in general business liability insurance per year.

Normally the cost for liability insurance will vary depending on the specific risks of your business.



Getting the right coverage from the right company is very important. It can protect you from various concerns starting from damage to your property to the risk of cyber crime. Ensure you have adequate coverage to give you peace of mind so that you can serve your customers better. Find a trusted insurance company today and get limited liability insurance at an affordable rate.

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