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Can there be personal liability even when you have an LLC?

Can there be personal liability even when you have an LLC?

Posted by Bernard Dietz | Oct 25, 2012 | 0 Comments

One of the major benefits of forming a Virginia LLC (or a corporation, for that matter) is the limited liability protection it provides for its owners (the Members).  However, it is important to note that the limited liability protection of an LLC is not absolute. There are situations where a Member may be personally liable even while being an LLC owner.  There is the potential for contractual or tort liability.  For example, a Member will have contractual personal liability if they personally guarantee a loan to the LLC or a lease for the LLC's office space.  A Member may also be liable in tort for damages caused by that owner's own negligence or wrongful act (for example, a car accident in which the owner was driving the vehicle on LLC business).

In addition, a Member can be held personally liable under certain laws.  Examples include if that Member is a “responsible person” under federal, state, and local tax laws (for example, for payroll withholdings), pursuant to certain securities laws (for example, for the sale of membership interests in the LLC), for the breach of the LLC's Operating Agreement, and for wrongfully taking any distributions from the LLC (for example, when the LLC is not able to pay its current obligations) or for failing to make any contractually agreed-upon contributions to the LLC (for example, your initial capital contribution set forth in the Operating Agreement).

While there is the potential for personal liability, the benefits of a Virginia LLC (especially over time) still make it a good choice of entity.  But it's important to know how personal liability may attach so you can take further steps to protect yourself.

About the Author

Bernard Dietz

Bernie Dietz is a Virginia lawyer and Virginia business attorney with more than 15 years of experience as both an attorney and a business executive, which gives him a unique view into the special needs of small to medium sized businesses. He has worked in business development, sales, and marketin...

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