One of the reasons people create limited liability corporations (LLCs) is right in the name of the business organization. They do it to limit their personal liability if the business fails or faces legal action.
When you create a business, there is always a risk of someone filing a lawsuit against the company and expecting you to compensate them as the owner or executive. Creating an LLC means creating a separate legal entity that helps shield you from claims by creditors or anyone else with grounds to take legal action against the business. When might the protections of an LLC not protect you?
When you haven’t filed the necessary paperwork
Part of owning and operating an LLC involves both naming an agent and filing all the necessary paperwork with the state. You also have to file tax returns on behalf of the LLC. Companies that are not up-to-date with their documentation requirements and that do not have an agent registered offer fewer protections for owners and executives than those that are in compliance with all regulatory requirements.
When you haven’t adequately separated your finances
Especially when you first start a company, it is very easy to accidentally commingle your personal assets with business assets. Commingling might involve using your personal bank account to pay for business expenses. Unfortunately, commingling makes it easier for litigants to pierce the corporate veil and potentially hold you accountable for losses related to the business.
Getting help when starting a business and ensuring that you are in compliance with all necessary paperwork and filing can go a long way toward protecting personal assets from claims related to the business in the future.