LLCs Are Not 100 Percent Creditor-Proof

Choosing a business structure is the first thing you do when you establish a business, and many entrepreneurs, especially inexperienced ones, make the decision hastily.  When your only basis for the decision is the one-paragraph descriptions on the IRS website, you can easily get the impression that the limited liability company (LLC) business structure gives you superpowers.  Brief blurbs about the LLC structure make it sound like, no matter how much financial trouble you get into with your LLC, you will never be responsible for paying a penny from your personal bank account to fix the mess that your LLC created.  Yes, the phrase “limited liability” in the name of the business structure means that, in most cases, LLC owners cannot be held personally responsible for financial obligations owed by the LLC, but that doesn’t mean that you can just take your LLC on a collision course of risky financial decisions, debts you have no intention of repaying, and gross negligence and then disappear into the ether when people sue you.  For help facing reality after your LLC bites the dust, contact a Washington, D.C. small business lawyer.

The LLC Business Structure Is Not a Cloak of Invisibility

In most cases, the LLC business structure protects the owners of the LLC from personal liability for the LLC’s debts.  These are some situations where creditors can pursue you to repay the LLC’s debts out of your personal funds:

• You co-signed for the loan when the LLC borrowed money
• You pledged a person asset of yours to secure a loan borrowed by the LLC
• The creditors claims that you committed fraud by making false statements on a loan application when borrowing money in the LLC’s name

LLC owners co-signing for business loans for their LLCs or using their personal assets as collateral happens frequently, especially with newly founded LLCs, which do not have enough credit history to qualify for loans in their own names.

Using an LLC for a Personal Real Estate Purchase Will Probably Backfire

It only makes sense to purchase real estate properties in an LLC’s name if the LLC is a real estate investment company.  The process is the same if you use the LLC to buy a house, but then you live in it yourself instead of renting it out to tenants.  In the past few years, regulations have become much stricter about real estate purchases by LLCs.  In order to prevent LLCs from purchasing real estate for purposes of money laundering or shell corporation activity, the government now requires mountains of paperwork when an LLC buys a house, even more than the usual mountain of paperwork associated with buying a house.  Whether your LLC is buying a house for business purposes or for you, it is best to work with a lawyer when buying a house through an LLC.

Contact Tobin O’Connor Ewing About Medical Expenses in Retirement

A Washington, D.C. small business attorney can help you avoid becoming personally liable for business debts, even with an LLC.  Contact Tobin, O’Connor, and Ewing in Washington, D.C. or call 202-362-5900.

Source:

nolo.com/legal-encyclopedia/personally-liable-llc-corporate-debt-bankruptcy.html#:~:text=A%20corporation%20or%20LLC’s%20owners,and%20risk%20losing%20personal%20assets.