Legal Question in Business Law in Washington


Can a person be suited even though they are protected by their LLC?

Asked on 5/30/08, 5:01 pm

3 Answers from Attorneys

Scott Wolfe Jr. Wolfe Law Group, LLC

Depending on Circumstances

I agree with Susan Beecher's pithy answer here: "Yes, under some circumstances." As is usual in law, answers are not always as simple as we may hope.

I wanted to chime in, though, and give you some general information as to what protections a LLC can give to you, and some common circumstances when the LLC will not shield you from personal protection.

Generally speaking, formation of a business entity is advisable when a person or group of people go into business. The legal theory behind a business entity is that the LLC / Inc actually is a separate person under law, and can therefore incur debts and liabilities. Just as one person cannot be sued for the debts and obligations of another person (even most relatives) - those related to the business entity cannot be sued for the debts and obligations of the entity.

However...there are always some exceptions.

First, you can personally guarantee the obligations of a business entity.

This is very common with new companies, since lenders are cautious about shelling out $ and items to new businesses without assets to offer as security. These lenders usually require the members of the LLC to "personally guarantee" the obligation, and if the LLC defaults, the members themselves can be held personally liable.

Second, the legal protection offered by the LLC can be "pierced" by a legal theory called the "piercing of the corporate viel." Under some circumstances, a court will "disregard" the fact that a business entity exists and hold the owners of the company directly liable for an obligation. The circumstances that allow a "veil piercing" usually result in the court determining that the owners of the company "disregarded the corporate entity" or that the entity was the "alter-ego" of the owners. In other words, the existence of the company is a "sham." There is a legal test to determine whether this theory applies in your circumstances, and the answer will depend case by case.

Finally, and unfortunately, a plaintiff may sue you personally even though you may not have a personal liability for the obligation. In this circumstance, you will want to hire an attorney to have you dismissed from the action. This may be a very quick proceeding, but it may also take some time and money.

Good luck.

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Answered on 5/30/08, 10:23 pm
Susan Beecher Susan L. Beecher, Atty at Law

Re: Llc

Under some circumstances, yes.

I'm sorry the answer cannot be more precise, but you really need to post again with further details. What would the person be sued for? What are the circumstances? Have all the formation formalities been observed?

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Answered on 5/30/08, 5:10 pm
Howard Morrill Gordon Thomas Honeywell

Re: Llc

The question is whether you are protected by your LLC. There are some liabilities you cannot be shielded from even if you have a corporation or an LLC.

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Answered on 5/30/08, 5:10 pm

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