The LLC form of company ownership generally shields individual owners (known as members) from personal liability for the debts or obligations of the LLC. Creditors of an LLC can normally only go after the assets of the LLC and not the member's individually owned assets.
Are you personally liable for business debts?
There are certain situations where you can be held personally liable for business debts, such as:
- When your company fails to pay its employees or its taxes.
Owners of a business can be held personally liable under State and Federal labor law if the company fails to pay employee wages, payroll taxes or fails to contribute to employer-sponsored retirement plans. Under state and federal tax law, owners of a business may be personally liable to pay legally owed taxes.
- If you sign personal guarantees.
Often, in a small business, one or more owners may be required to sign a personal guarantee for a mortgage loan or business line of credit. Such lenders usually have a collateralized interest in company assets and may seek collection of unpaid debts from the guaranteeing member.
- If you personally borrow money or use personal credit cards to fund company operations.
The individual member will be held personally liable for such loans or extensions of credit if not repaid. This does not mean in such circumstances that the company assets will be exposed to such creditors unless the creditor is able to pierce the corporate or company veil.