business
Is forming an LLC soon after being made aware of a lawsuit a legitimate way of protecting your personal assets?
<p>Say you operate a quasi-business. You make money, but the operation is categorized as a hobby by the IRS and isn't actually registered.</p>

<p>If someone sues you, can you quickly form an LLC and then "transfer the blame" to the LLC, or will the court see what you're doing and still make you liable?</p>

<h2>No</h2>

<p>An LLC that didn’t exist at the time of the act or omission that caused the loss being sued over is not a valid defendant. They would sue you personally and all of your assets, including the LLC, would be available to the creditor.</p>

<p>Forming an LLC would not protect your assets in this case. To hold your assets apart from your LLC, you would have to demonstrate the "arms-length" distinction between yourself and the LLC. This isn't there so any lawsuit arising from your personal/professional actions would subject your personal assets to recovery by the aggrieved party.</p>

<p>It is important to know that just having an LLC doesn't protect you, it needs to be run in such a manner as to make it a distinct entity. Also if you do something in the LLC (or any company) that can be seen as not in your companies best interest (like embezzling from a client) you can still be held personally liable, even if the transactions were done through the company.</p>
