Will Your LLC Protect You in a Lawsuit?

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By: Bill Henry
PublishedMay 4, 2021
2 minute read

Nobody welcomes a lawsuit, but business owners have additional concerns as they need to protect their personal assets. Many business owners choose the limited liability company – or LLC – designation because it’s a way to limit personal risk. But there are instances when business owners lose that LLC protection.

In this article, litigation attorney Kayla Banzali discusses when LLC protection disappears.

Questions About LLC Protection?

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How Far Does LLC Protection Go?

Business owners often want to know whether their limited liability company will protect them personally from liability in a lawsuit. The answer is yes most of the time.

There are circumstances, however, when your LLC will not protect your personal assets.

When LLC Protection Won’t Work

Sometimes the courts will allow what is called piercing the corporate veil. This happens when a company intentionally tries to shirk its legal obligation. Let’s look at some examples when a court would allow the corporate veil to be pierced.

No Separation Between Business & Personal

It can happen when a business owner breaks the rules and co-mingles his or her personal assets with the business’s assets.

Illegal Practices

It can happen when a business is used to shelter an illegal enterprise. For instance, a bakery owner uses their business to launder money from selling drugs.

In these kinds of circumstances, the protections that the LLC provides are no longer available.

How to Protect Yourself

There are things you can do to insulate yourself:
  1. Make sure your company is treated as a distinct entity.
  2. Have an operating agreement in place.
  3. Use separate bank accounts for your business funds and personal finances.

Even if your business is a sole proprietorship – meaning you are the only one in the company – it is strongly recommended that you heed the previous three steps to protect your personal liability.

In a nutshell, you want to make sure that your company is treated like a business, rather than an individual doing business.

Get Help for Your Business

Let us know if you have any questions about the content in this article, or about LLCs in general.
Setting up an LLC is not necessarily a simple process. You may consider turning to an experienced attorney to help you through its creation.
An attorney who specialized in business law can ensure your LLC is on a sound legal footing and that the rules are clear.

Schedule an assessment

Call 303-688-0944 to set up a 30-minute meeting with one of our business law attorneys. You can also schedule online when you click here.

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