Whether it’s a corporation, company, limited liability entity, limited partnership, partnership or business trust, business owners are encouraged to form and use some type of business entity to limit their personal liability exposure, creating a firewall to prevent personally responsible for their business’ debts. Some of the events that enable a business’ creditor to breach this protection include:
- Disregarding the Entity. If you fail to honor the integrity of the entity, creditors can disregard it and reach your personal assets.
- Fraud. If the entity is a sham, used to avoid creditors or engages in illegal or improper conduct, the entity protection can be lost.
- Personal Guaranties. If you personally guaranty an entity debt, you voluntarily exposed your personal assets to the entity’s creditor.
- Individual Liability. Even when acting on behalf of a business entity, you can be personally liable for negligent, intentional, or wrongful conduct and omissions.
- Recourse Debt. If you allow a partner or co-owner to incur “recourse debt” for the entity (creditors have recourse against owners), you may be subject to personal liability.
- Improper Signing. Failing to identify your title or to correct documents that do not identify you as merely signing as a representative can subject you to the business’ debt.
- Improper Name. Allowing or using an improper entity name without a trademark or registered alias could strip you of limited liability protection.
- Fraudulent Conveyances. Transferring assets to insiders or preferred creditors for less than fair market value to defraud other creditors can create personal liability.
Planning and proper advice can prevent your loss of the limited liability protection your business entity provides. The attorneys at Brooks, Tarulis & Tibble, LLC can advise and guide you on preserving the entity’s limited liability status and protecting your personal assets. Please contact us with any questions or issues.