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  1. #1
    Join Date
    Jan 2019
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    3

    Default Use of Personal Property in Business (LLC and Partnership)

    My question involves business law in the state of: Washington.

    My wife and I are considering starting a business in the form of a LLC with both of us (and nobody else) as members. This would be an extension of our hobbys so we are looking to use some of the personal assets we have right now (equipment, tools, intellectual property) to achieve the business goals. In parallel, we’d like to continue using the same equipment for personal, non-commercial reasons (fun! ). Is use of personal assets in business allowed or regulated/limited in any way? Are there financial or tax consequences? What are the differences in this regard between a LLC and a partnership?

    Thanks.

  2. #2
    Join Date
    Oct 2014
    Posts
    7,204

    Default Re: Use of Personal Property in Business (LLC and Partnership)

    Quote Quoting golish
    View Post
    My question involves business law in the state of: Washington.

    My wife and I are considering starting a business in the form of a LLC with both of us (and nobody else) as members. This would be an extension of our hobbys so we are looking to use some of the personal assets we have right now (equipment, tools, intellectual property) to achieve the business goals. In parallel, we’d like to continue using the same equipment for personal, non-commercial reasons (fun! ). Is use of personal assets in business allowed or regulated/limited in any way? Are there financial or tax consequences? What are the differences in this regard between a LLC and a partnership?

    Thanks.
    The main purpose for using a LLC for the business is to shield yourself from personal liability for the debts of the business. But to ensure that you get the benefit of that limited liability you must treat the LLC as a separate entity from yourselves. That means keeping the assets, debts, and activity of the LLC distinct for your personal assets, debts and activity. If you use the LLC assets for personal use, or personal assets for the LLC use, you blur the lines between the business and yourselves and put at risk the limited liability protection.

    Whether you use a LLC or not, you have to keep track of personal and business use of assets for tax purposes because only the portion used for business is deductible as a business expense.

    I suggest you consult a business attorney and tax attorney before setting up the business to get advice on the best way to set this up for the business you have in mind and to ensure you do everything correctly.

  3. #3
    Join Date
    Jan 2019
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    3

    Default Re: Use of Personal Property in Business (LLC and Partnership)

    Quote Quoting Taxing Matters
    View Post
    The main purpose for using a LLC for the business is to shield yourself from personal liability for the debts of the business. But to ensure that you get the benefit of that limited liability you must treat the LLC as a separate entity from yourselves. That means keeping the assets, debts, and activity of the LLC distinct for your personal assets, debts and activity. If you use the LLC assets for personal use, or personal assets for the LLC use, you blur the lines between the business and yourselves and put at risk the limited liability protection.

    Whether you use a LLC or not, you have to keep track of personal and business use of assets for tax purposes because only the portion used for business is deductible as a business expense.
    Thank you for your response! The tax and depreciation aspects is something I understand a bit better than the exposure risk. Would it be correct to think that only those of my personal assets which are used for both personal and business purpose are potentially exposed to any claims in the same way LLC assets are? For example, if I own a house, a car and a computer and only the computer is used for business (despite remaining my personal asset ownership-wise), the house and the car aren’t being exposed to potentiall risks related to running the business?

    Thank you.

  4. #4
    Join Date
    Mar 2013
    Posts
    16,867

    Default Re: Use of Personal Property in Business (LLC and Partnership)

    That's where it gets complicated. Your personal assets could still be at risk because people who operate a one or two member LLC are virtually indistinguishable from the LLC entity. Any lawsuits against the LLC would almost invariably include the individuals as defendants. Further, the individual is still responsible for his own negligence and for any contract for which he gave a personal guarantee.

    As to the extent that your personal assets could be at risk, that depends on your state's exemptions from judgment. For example, the homestead exemption for WA is $125,000. A motor vehicle is exempt up to $3250 or two vehicles up to $6500 if community property. Other personal property has some limited protection. IRAs, 401(k) plans, qualified pensions, Social Security are all exempt from judgment.

    Bottom line, whether you use an LLC or not, if you want proper protection of assets you buy the proper liability insurance for the type of business you operate.

  5. #5

    Default Re: Use of Personal Property in Business (LLC and Partnership)

    to add to what Jack stated, if you co-mingle personal assets with business assets you run the risk that if you were sued they would be able to ignore the LLC protection and hold you personally liable.

  6. #6
    Join Date
    Jan 2019
    Posts
    3

    Default Re: Use of Personal Property in Business (LLC and Partnership)

    Thanks for all the replies, this really helps! Of course, I’ll consult a lawyer and a CPA before moving forward.

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