Exceptions to Limited Liability for Corporations and Limited Liability Companies

One of the main reasons for incorporating or forming a limited liability company (LLC) is protection from personal liability for business debts and claims. While corporate and LLC owners enjoy this limited liability in many situations it is important to realize that limited liability is not absolute. A corporate shareholder or an LLC member may be held personally liable if he or she:

1) Personally and directly injures someone;
2) personally guarantees a bank loan or other business debt and the company defaults;
3) fails to deposit taxes withheld from employees’ wages;
4) intentionally engages in fraud or illegality which causes harm to the company or someone else;
5) mixes business and personal assets and does not maintain separate accounts for the business and personal finances.

Business insurance may be helpful in certain situations to protect you if limited liability does not apply but many insurance policies contain exclusions for intentional acts.

The best advice for running your corporation or LLC is to make sure you keep your personal guarantees to a minimum, pay applicable taxes and keep all business dealings separate from your personal accounts.

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Rush Nigut is a shareholder with the Brick Gentry Law Firm in West Des Moines, Iowa. His practice includes both transactional and litigation matters including franchising and business law. Rush started his legal blog, Rush on Business, in 2006. He has been quoted…

Rush Nigut is a shareholder with the Brick Gentry Law Firm in West Des Moines, Iowa. His practice includes both transactional and litigation matters including franchising and business law. Rush started his legal blog, Rush on Business, in 2006. He has been quoted or referenced by hundreds of other blogs, websites, and publications. He also is the editor of the Brick Gentry Trial Team blog and can help you identify the most qualified lawyer at Brick Gentry to handle your case. Our lawyers have a breadth of trial experience in personal injury, employment discrimination, business litigation, IP law, and class action cases.