One of the fundamental advantages of creating a business entity is that the corporate form provides personal liability protection for business owners. This doctrine of limited liability is a bedrock principle in our legal system dating back well over a century. It allows business owners to separate and protect their personal assets from liability incurred by an entity in the normal course of business. Generally, a shareholder of a corporation or a member of a limited liability company is not personally liable for the debts, obligations, or liabilities incurred by the business. In other words, if the business is sued, the owner’s personal assets cannot be used to satisfy any liability incurred by the business.
This rule is subject to a few exceptions. For example, if the business owner uses the business to conduct fraudulent activities or mixes business assets with personal assets, a court can “pierce the corporate veil” and hold a business owner liable for a debt of the business. Likewise, failure to observe the legal formalities of the entity can increase the risk of losing limited liability protection. Proper observance of legal formalities may mean holding annual meetings of the shareholders or members, keeping strict separation between business and personal funds, and keeping complete and accurate records of corporate actions (like board meetings).
Our business law attorneys can help you understand what steps to take to maximize the protection of your personal assets. Call us today at (317) 825-5110 to discuss your business and how we can help you achieve cost-effective and efficient results.
This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.