6 Circumstances Where an LLC Won’t Provide Asset Protection

If your business is incorporated, your personal wealth is generally shielded from business liabilities like debt or litigation.

However, there are some circumstances under which your asset protection could be jeopardized, including if you:

Use your own name on a contract. Signing a contract with your own name instead of the name of the company is a common mistake, but one that could cost you if the contract becomes the subject of litigation.

Personally guarantee a loan. It is not unusual for entrepreneurs starting new business ventures to provide a personal loan guarantee to get the business off the ground. However, you should be aware that you are surrendering the limited liability protection for that debt.

Charge business expenses on a personal credit card. This is just another way of providing a personal guarantee on a business loan, and the debt you incur on your personal card will not be protected.

Incur a negligence or malpractice claim. Attorneys, physicians or other professionals who run a greater risk of incurring a claim of malpractice or negligence need to have a professional liability insurance policy in place to protect their personal wealth from these claims.

Do something illegal. The liability protection of your LLC or corporation will be lost if you break the law, including if you misrepresent yourself on a credit or loan application.

Don’t follow the formalities to keep your LLC or corporation in compliance. There are certain formalities that must be followed in order to keep a corporation or LLC in compliance and maintain personal liability protection for the owners. If you fail to follow these rules, your liability protection could be lost.

Since your business will undoubtedly change over time, it is wise to regularly review your corporate structure and practices with a qualified Florida business attorney who can help ensure that your LLC or corporation is in compliance, and that the asset protection for yhour personal wealth is not at risk.