When Your LLC May Not Protect Your Personal Assets

Creating a limited liability company for your business can protect your personal assets if something goes awry with your company. However, forming an LLC will not protect your personal assets in every case.

Attorney Kristoffer Wathne specializes in limited liability, and he delves into the LLC protections in this video.

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Why an LLC May be the Best Choice for Your Company

Limited Liability Companies, or LLCs, have become popular in the United States during the past 30 years for a variety of reasons.

One is: they are very flexible. The LLC also protects you – the business owner – from personal liability when you’re operating within a business capacity.

What that Protection Means for You

If you are acting in a role for the limited liability company on behalf of the company, for instance, your personal assets will be protected in the event a lawsuit is filed against the company.

That’s very important. Why? Your personal possessions and wealth are protected against lawsuits by your creditors if the business goes south.

Example:

Let’s say you own a bakery with a clean service and health record. One day a patron serves you with papers claiming he suffered from food poisoning after eating one of your cookies.

You are forced the close the bakery until it can be cleaned and disinfected and a new health inspection can be scheduled.

The people who supply you with sugar and flour, as well as the businesses you owe for your commercial ovens and kitchen equipment, are threatening to sue if they are not paid on time.

In this example, your home and personal assets are protected by the LLC. The creditors may file a lawsuit against the business and its assets, but they cannot go after your personal assets.

That is very important for many business people so they can make sure they retain all their personal assets and still fully function in their business.

When LLC Protection is Blocked

These protections are not failsafe. With just about everything else in life, LLC protections also have exceptions, particularly when the court decides to pierce the corporate veil.

Piercing the corporate veil is a term courts use. In these cases, a court can decide to ignore the protections the LLC provides.

A Closer Look at Piercing the Corporate Veil

Essentially, piercing the corporate veil means the protection of the LLC will not apply if the court finds the company was being used to commit crimes.

Other examples when a court would pierce the corporate veil:
  • If the company was underfunded to begin with and could never realistically stand on its own
  • If funds are mixed between personal accounts and business accounts and whether LLC rules are followed

If LLC rules are broken, the court may find that you can are personally liable, even for debts and obligations of the business.

An Attorney Can Help You Avoid these Pitfalls

It’s always important to ensure that you maintain the limited liability, that you follow corporate rules and regulations, and that you keep separate personal and business bank accounts.

In short, if you try to be on the up and up when conducting your business and your personal matters you should be fine.

Have Questions About Limited Liability Company Rules?

Call 303-688-0944 to schedule a free case assessment or click here to schedule online.

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