Succeeding in business often requires some financial risk. By forming a limited liability company, you protect your assets from your creditors. That is, if someone wants to sue your LLC for unpaid bills or anything else, only your business venture’s assets are likely to be on the line. However, there are certain circumstances outlined in business law where the personal liability protections of your LLC may be at risk.
While the LLC business model provides comprehensive protection for your wealth, the protection it offers is not bulletproof. If a court decides to pierce your LLC’s liability veil, your creditors may go after your wealth.
Undercapitalization
Capitalization is the first area a court is likely to explore when deciding whether to hold you personally liable for your LLC’s debts. If undercapitalization has left your LLC with insufficient funds to conduct normal business operations, you may be in trouble. In such cases, it’s essential to consult a commercial litigation lawyer to understand how undercapitalization could affect your liability protections.
Blurred lines
There should be a firm line of separation between your finances and those of your LLC. This means you should have different business and personal accounts. If you commingle your wealth with your LLC’s assets, a court may decide to waive liability protections.
Bad actions
You need to follow the law when conducting business. If you use your LLC to engage in fraud or other bad acts, a court may not be willing to reward you by protecting you from your LLC’s creditors. This is especially true if you receive a major advantage at the detriment of your LLC’s vendors, customers or others.
Ultimately, by having good business practices, you probably do not have to worry about losing your LLC’s personal liability protection. However, if you find yourself facing legal challenges regarding your LLC’s liability, consulting with experienced attorneys such as Daughtry, Woodard, Lawrence, & Starling can provide valuable guidance on protecting your business interests.
