LLC releases liablity?

Question

When you hold a property in a LLC, does it release your private liability for everything? 
Also when you don't pay your note?
Also when you mismanage your LLC?

Where can I verify this information?

Thank you so much for your help!

Ofcourse I am not planning on doing all this, but I want to check this first.

Mitch Kronowit · Answer

No, they have not. What courts have ruled, namely in the cases such as Olmstead and Albright, is that simply moving assets into an LLC, especially one that doesn't serve ANY business purpose, does NOT protect them from personal liability - or what is termed a "top down creditor". While the LLC may technically own the assets, the member technically owns the LLC, so the assets can be attached.

It simply does NOT apply the other way around. Liabilities that occur within an LLC (single-member or multi) are limited to the assets of the LLC and NOT the personal assets of the member(s). This is termed a "bottom up creditor". Find me one attorney that disagrees.

Doesn't matter what it seems like, the courts have ruled that single-member LLC's are legal entities. That is probably one reason several states, such as California, held off on allowing SMLLC's to be formed, i.e., they were waiting for precedent.

Better than operating as a sole proprietor.

Bill Gulley · Answer

There is always risk, so do your best.

Don't worry about a bank loaning you money without a personal guarantee, because it won't happen, at least not untilyour company can prove sufficient income, have more collateral than would be required, have good credit and have assets that far exceeds the risk to the lender....but even then, more than likely, it still won't happen.

J Scott · Answer

It won't release the owners from any personal negligence.  If the note is in the business name solely, you have no liability, though very few lenders are going to lend to a business without a personal guarantee.  Also, if you mismanage your LLc (depending on exactly what you mean), you probably won't be protected.

Mitch Kronowit · Answer

Thanks for the input Jaime. I've come to believe that if you legally and sincerely treat your LLC or corporation like a separate entity, so will the court.

Jaime Kosofsky · Answer

As a former litigation attorney... I would sue you and your llc. I would try and show that your LLC was a mere instrumentality of you.... and if I did, I got you and your LLC.

An LLC and Corporation are nothing more than a mere hurdle. If you are relying on an LLC make sure you sign your name like a member and or manager of the LLC, make sure you have a tax id number, make sure you have an operating agreement, and your yearly filings... In short, here is the way the court looks at it: if it walks like a duck, quacks like a duck, its a duck...
so act like a duck!

Will Barnard · Answer

No such thing as totally safe. That said, an LLC liability is ONLY "inside" liability protection, not outside. In other words, if your LLC owns a property, and you drive drunk and kill someone, You and ALL your assets, including your LLC, will be sued.

Inside liabilty refers to protection inside the entity. In other words, if your tenant falls and brakes their neck in your rental, they can only sue yoru insurance and the LLC, not you personally or your other persoanl assets, UNLESS . . .
Your corporate veil is pierced and there are many ways this can be done. If you act negligent (if the tenant informs you that the front step is broken, you do nothing, they inform you again in writing, you do nothing, then grandma visits and dies on the front step from tripping, you will be held negligent and therefore responsible so you and ALL your persoanl assets will be at risk. You can also improperly run your business such as not keeping seperate bank account for your entity, or not keeping up with the entity paperwork and filings, and many other ways.
Speak with a legitimate attorney familiar with entity structuring and legal issues of entities.

Bill Gulley · Answer

Jason is right on but just to add, how you conduct the business will determine your liability as well, doing something stupid will likely be covered, grossly negligent might get you hung, especially with other members of the LLC. If you are the only member, your conduct will have alot to do with what you may be liable for with the public. Insurance is a good idea, but it will not cover intentional acts or illegal activities.

J Scott · Answer

Mitch -

As many time as this topic comes up on BP and as many times as I try to express this sentiment, it never comes out nearly as well as you just summarized it in three sentences.

Thank you...  :D

Mitch Kronowit · Answer

I agree, but we're not talking about using an LLC to protect assets from personal liability. The units of an LLC, like stock certificates, are just another personal asset to be attached.

The purpose of the LLC is to separate the assets of the business from the personal assets of the member. The LLC protects the member from the business. The member needs liability insurance to protect the business from himself.

J Scott · Answer

As Bill said, you're not going to find a bank that will loan to you these days in a new business entity without a personal guarantee.  But, assuming you manage the business entity correctly, run the company as a business, and don't do anything personally negligent, you're probably pretty protected.  You can still get sued personally (anyone can sue anyone for anything), but you'll likely be protected given the assumptions above.

And yes, you should have general liability insurance as well to help protect against business losses...

LLC releases liablity?

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