How to avoid personal liability

Ahem.. for all the virtues that come along with LLCs, I hate to say this, but…sometimes, yes, you can be sued personally. In weird legal lingo, it’s called piercing the corporate veil when a court imposes personal liability despite the LLC protections. Generally, whether you will be found personally liable depends on factors such as whether you are running your business like a frikin’ circus, or whether you’ve been shady to the level of fraudulent!

Also, it’s common that at one point or another you’ve agreed to personal liability by signing a personal guaranty for a loan or commercial lease.

Still, if you are operating an LLC like the responsible business owner that I know you are, your personal assets are protected. This protection extends to you home, car, personal bank account, and private investments.

But, it’s fun, and important, to talk about the times your personal A$$ could be on the line. A court will put your personal A$$ on the line by what they call “piercing the corporate veil.” Sounds kind of dirty, right. Well, it is, but NOT in THAT way.

Your LLC’s “corporate veil” could be pierced by a judge if:
• You engaged in fraudulent behavior
• You failed to comply with corporate formalities, like keeping your information accurate, holding annual meetings, comingling your personal and business funds
• Comingled personal and business assets

The Ohio Supreme Court states that to impose personal liability on the owner of the company, the Plaintiff must show:
1. You exercised control over the company in a such a complete (and, unhealthy) way that the company has no separate mind, will, or existence of its own. I know…language like this is murky, and why people hate lawyers. So… let me paraphrase: you didn’t treat your company like a legit business, you commingled funds, you didn’t keep business records or minutes, you mixed personal property with business property…things like that.

2. You were fraudulent or did something illegal. Your behavior needs to rise to a level above unjust or unfair.

3. You harmed someone. They incurred damages because you were acting like a jerk.

Rest assured folks, being found personally liable is really rare but if you have questions, do not hesitate to ask for more explanation!

Contact Wick Law today for help understanding best practices when operating your business!

Wick Law, LLC is a small business legal practice, representing owners, investors, and entrepreneurs in all aspects of commercial, corporate, and business law, estate planning, contracts and negotiations, business litigation, and real estate. For more information: Contact 614-572-6366, visit www.mwicklaw.com, or email us at mwick@mwicklaw.com. Wick Law, LLC is located in Columbus, Ohio.

(Materials in this article have been prepared by Wick Law, LLC for general informational purposes only. This list is for educational purposes and is not to be considered exhaustive. More items could be added to this checklist based upon the type of transaction or industry standards. These materials do not, and are not intended to, constitute legal advice. The information provided is not privileged and does not create an attorney-client relationship with Wick Law, LLC or any of the firm’s lawyers. This checklist is not an offer to represent you. You should not act, or refrain from acting, based upon any information in this checklist. Wick Law, LLC maintains offices in Columbus, Ohio, and has lawyers licensed to practice in Ohio and in the United States District Court, Southern District of Ohio. The firm does not intend to practice law in any jurisdiction where the firm is not licensed.)