Can You Be Personally Sued with an LLC?
As a business owner, you want to protect yourself and your assets from potential lawsuits. One way to do this is by forming a limited liability company (LLC). But, can you still be personally sued with an LLC? The answer is yes, but it depends on the circumstances.
An LLC is a type of business structure that provides personal liability protection for its owners, known as members. This means that members’ personal assets, such as their homes, cars, and savings accounts, are generally not at risk in the event of a lawsuit against the company. However, there are certain situations where members can still be personally sued.
When Can You Be Personally Sued with an LLC?
Here are a few situations where you may be personally sued with an LLC:
- Personal Guarantees: If you personally guarantee a loan or contract for your LLC, you can be sued if the company defaults on the loan or fails to fulfill the contract.
- Negligence: If you personally engage in negligent behavior, such as driving under the influence while on company business, you can be sued for any damages or injuries that result.
- Fraud or Misrepresentation: If you make false or misleading statements on behalf of the company, you can be personally sued for fraud or misrepresentation.
- Piercing the Corporate Veil: In some cases, a court may “pierce the corporate veil” and hold members personally liable for the company’s debts or liabilities. This typically occurs when the company has not been properly maintained, such as failing to hold regular meetings or keep proper records.
How to Protect Yourself with an LLC
While an LLC provides personal liability protection, it’s important to take steps to further protect yourself and your assets. Here are a few ways to do this:
- Maintain Proper Corporate Formalities: It’s important to maintain proper corporate formalities, such as holding regular meetings and keeping accurate records, to ensure that your LLC is properly maintained and to avoid piercing the corporate veil.
- Get Insurance: Consider getting liability insurance for your LLC to protect against potential lawsuits. This can help cover the cost of legal fees and any damages or settlements that may be awarded.
- Avoid Personal Guarantees: If possible, avoid personally guaranteeing loans or contracts for your LLC. If you must personally guarantee a loan or contract, be sure to fully understand the terms and the potential risks involved.
- Be Careful with Your Actions: Avoid engaging in negligent or fraudulent behavior, as this can result in personal liability. Always act in the best interest of the company and be transparent in your actions and statements.
While an LLC provides personal liability protection, there are still situations where members can be personally sued. It’s important to maintain proper corporate formalities, consider getting insurance, avoid personal guarantees, and be careful with your actions to further protect yourself and your assets. By taking these steps, you can help ensure that your LLC provides the personal liability protection you need to run your business with peace of mind.
If you have any questions or concerns about personal liability with an LLC, it’s important to consult with a qualified attorney who can provide guidance and advice specific to your situation.