Can You Sue an LLC Owner?
Look, nobody sets out to get sued – especially not business owners. Even with a limited liability company (LLC) designation, there are some mistakes an LLC member may have to account for if proper steps aren’t taken.
While the LLC business model is a popular choice for its flexibility and personal asset protection, it has limitations. This understanding can prevent potential risks and ensure the structure of your business is secure. So, can you sue an LLC owner for their personal assets in addition to their professional ones? In this article, I’ll go over what liabilities an LLC designation protects business owners from and the limits of those protections.
The Full Extent of LLC Personal Liability Protections
An LLC often protects members from personal liability if their business has been sued. This designation protects business owners from having their personal bank accounts, vehicles, and properties directly affected by the suit’s outcome.
There are circumstances, however, when your LLC will not protect your personal assets.
When Can You Sue an LLC Owner?
There are circumstances under which a court may pierce the corporate veil of an LLC. That means the court has found the company to be an extension of its owners rather than a separate entity. This is possible when a company intentionally takes actions to avoid legal obligations.
Courts are usually hesitant to affirm this order. However, an LLC found to have engaged in the following actions will make personal liability unavoidable.
No Separation Between Business & Personal
Co-mingling personal assets with business assets can lead to problems. In this case, the LLC would be an extension of the member’s personal life and not a separate entity.
Illegal Practices
The court will not hesitate to remove a business’ LLC protections if it has been used to shelter an illegal enterprise.
How to Protect Yourself From Personal Liability
I’ve seen too many business owners overestimate the power of an LLC designation, only to suffer the consequences professionally and personally.
Fortunately, there are things you can do to insulate yourself from LLC misuse:
- Make sure your company is treated as a distinct entity
- Have an operating agreement in place
- Use separate bank accounts for your business funds and personal finances
Even if you’re the only member of your LLC, I strongly encourage you to follow the previous three steps to protect your personal liability. If you treat your business like a company rather than an individual doing business, you should be in the clear.