Operating your business as a limited liability entity generally protects your personal assets from claims of business creditors, but the informal operation of small to mid-sized and family-owned businesses can sometimes weaken that protection when things go bad, allowing a business creditor to reach the owners’ personal assets. Some of the areas where the risk is highest include:
- Signing Documents/Guaranties. Avoid personal guaranties, recourse loans and providing your personal information for business credit, and always sign as a representative.
- Breach of Fiduciary Duties. Officers, directors, employees and sometimes shareholders owe fiduciary duties to the entity and their improper conduct gives creditors an edge.
- Trust Fund Taxes. “Control persons” are personally responsible for trust fund taxes, generally taxes collected from others to pay to the taxing body.
- Real Estate. Undertaking unusual landlord obligations when the landlord is a related party.
- Related Entities. Transactions with related entities at less than fair market value and not properly documented.
- Credit Cards. The use of business funds for personal expenses.
- Insider Deals. Loans, gifts or benefits to insiders in lieu of or in addition to payroll.
- Ghost Payroll. Paying or giving benefits to family members or related parties without sufficient consideration to the business.
- Payroll. Owners and others are personally held liable for failing to timely, appropriately and properly pay employees.
- Financial Misrepresentations. Authorizing, signing, approving, using or allowing false or erroneous financial information.
The experienced business attorneys at Brooks, Tarulis & Tibble, LLC can assist you in identifying potential gaps in the limited liability protection your business offers your personal estate, and can represent you if problems arise. Should you have any questions, please contact us.