When launching a new business, many entrepreneurs choose a limited liability company (LLC) because they want to separate their personal assets from business risks. LLCs are often promoted as a simple way to shield yourself from business-related lawsuits, debts and financial setbacks.
However, forming an LLC is not a magic solution. While it can provide valuable protection, there are situations where you could face personal liability despite having an LLC in place.
An LLC is not an impenetrable wall
As mentioned, having an LLC does not guarantee complete immunity from liability. Courts look beyond the LLC’s existence and may examine how the business is actually operated. For instance, if you commit fraud, make intentional misrepresentations or engage in unlawful conduct, you can be held personally responsible for the resulting damages.
Personal guarantees can also expose you to liability. Lenders, landlords, and other parties often require business owners to personally guarantee business obligations. If you pledge personal assets as security for business credit, you may be personally liable even if the business operates as an LLC.
The same goes if you fail to maintain a meaningful separation between personal and business affairs. For example, using business accounts to pay personal expenses, mixing company and personal funds or failing to keep accurate records can create doubts over whether the LLC is truly operating as a separate legal entity.
Maintaining the legal protections your LLC provides
Creating an LLC is an important first step toward protecting yourself from business-related liability, but the work doesn’t end there. You need a broader risk-management strategy to help preserve the liability protections the LLC is intended to provide. Seeking legal guidance can help ensure your business structure and practices work in tandem to provide the protection you expect as your company grows.
