I know everyone always says to form an LLC or INC but is there a definitive guide or set if best practices to isolate your personal finances and personal liability from your business? I've pondered exactly what level of isolation is possible and needed.

I've got no experience in this area but I've been exploring buying rental property and perhaps a small business someday. I just want to make sure I am as isolated from it as possible.

What do you guys do?

LLC works for rental property.  We have an S corp for our pension but if you go that route there are rules on employees. If you are just looking at liability LLC with max coverage on each property in it and an umbrella should cover you fully.  Set it up with an attorney and a good cpa and you should be fine.  We have multiple LLCs for different ventures.

OK thanks... please correct me if I understand wrong.

Any LLC is a legal entity not unlike a person. It has a credit rating and a loan history and debt. It's ability to get  loan is based on that history and it's assets available for collateral. If it's new and has few or no collateral assets it's ability to get  a loan is based on its cash reserves. Those cash reserves need to be seeded by someone. In the case of a small rental business that somone would likely be the owner. So the owner seeds the account of the LLC which uses that cash to conduct business and apply for credit. When the business makes profit it  "pays" the owner as an employee.

If the LLC defaults on credit then the hit goes to the LLC credit rating. Now it's harder and more expensive for the LLC to borrow money. The owner - an employee - isn't impacted.

Do I understand this correctly?

as far as debt goes you are the signer and responsible for the debt.  I know of no bank that will loan money to an LLC.   The personal legal liability and tax benefits are the advantages of the LLC.

So when a business borrows money it's loaned to  specific individual in the business?

Put another way the finances and credit of the owner and the finances and credit of the business are indistinguishable?

unless the business has really strong numbers, the bank is going to require a guarantor. I can only speak to small business.  The business has tax benefits and limits the liability to the owner if someone sues. The bank requires a guarantor for loans.  The trick is to use the business for tax right offs and bring as little to your personal tax return as you can.  if you make money you pay taxes.  The tax rules are written for business owners.

Own nothing, control everything.

If you're asking if an LLC can take out loans, and then it goes defunct, will it impact you personally.

Yes.

No one loans to an LLC that was formed yesterday, and wants to borrow $300k today.

My LLC has been in operation over 10 years, has over a million in gross revenue each year, and over a million in assets. Banks will not loan it money with a personal guarantee. Suits me just fine because I don't borrow money.

The only businesses that get loans without a personal guarantee are huge businesses.

I would not say the business credit and the owners credit are one in the same. Banks are just going to require a personal guarantee from someone before they loan the business money.

The LLC primarily helps protect you in liability situations.

So in the case of a small and new business would it be correct if I said that the owner co-signs on any loan with the LLC? So the business is making the loan payments but the owner has co-signed and is guaranteeing the loan.

Yes, your personally guarantee the loan.

While all arfcom members are honest, upstanding citizens, the other point that should be brought up is that an LLC or any other type of incorporation won't protect you if you do anything fraudulent or illegal.

See "piercing corporate veil" for more information and don't do anything shady.

Yeah don't worry about that I'm not planning shadyness. My motivation is primarily enabling my families survival in the event my business didn't succeed. I'd hate to see my kids college futures destroyed or our home taken over a business attempt.

 Then reduce your risk by not borrowing money and carrying insurance.

Fixed for you. Otherwise, barring negative cash flow, get a new bank...

How far do you want to take it?  You can have the cash assets in your wife's name and place the house land and other hard or impossible to get assets in your name.  Thought about this when I open a business.  A lawyer friend was telling me about it.  I think it's like a post nup.  You can place up to 99% in one spouses name if your not worried about a divorce.

What?

Thanks. Yes typing on iPad and missed a key word.

Never had negative cash flow business is very profitable ibut banks simply don't loan to small LLCs without a personal guarantee. Like I said I don't care because I don't borrow money.

Think about it though why would a bank loan to a small LLC without a personal guarantee? If shit goes south all the LLC has to do is close down / file bankruptcy and the bank is shit out of luck with no recourse against the owners.