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What are the liability loopholes with an LLC business structure?

On Behalf of | May 27, 2022 | Uncategorized |

Entrepreneurs often choose a Limited Liability Corporation as their business structure to help limit the personal responsibility associated with company ownership and operation. However, there are still several ways you can still have personal responsibility for company debts.

Though the LLC business structure dictates that the company itself is responsible for its debts, creditors are able to pursue business owners for payments in the following situations.

Using your property as collateral

The early days of doing business often mean a company has very little by way of significant financial assets. If you made the agreement to pledge your home or large personal asset as collateral for a business loan, a creditor can pursue the pledged item to sell and meet the outstanding obligations.

Cosigning to guarantee a business debt

In addition to using your assets for collateral, using your signature on a business loan puts you in the position of being personally liable for the business debt. This move also opens up your personal assets to pursual from a creditor to satisfy the terms of the debt.

Committing acts of fraud

You are potentially liable for harm to a creditor that results from acts of fraud. If omissions or fraudulent representations led to the approval of a business loan or if the LLC further enhanced a fraudulent business or cause, you could face legal liability for any activities taking place.

Putting a business structure in place is an important decision. Carefully consider the financial and legal consequences of the choice you make.