question.jpgIn Business Law

How does the limited liability of LLCs work?

One of the biggest advantages to forming a company as an LLC is that, much like C corporations, the owners/members are not personally liable for most losses or debts of the company itself. Thus, there is so-called limited liability and the owners can only, generally, lose whatever money has been invested in the LLC, and nothing more. However, personal liability can attach in certain instances, such as where an owner tries to defraud company creditors or do some other illegal act - in these cases, a court may apply alter ego liability. Similarly, limited liability does not protect an owner for acts taken outside of his or her capacity as a company owner/employee. For example, if an LLC takes out a $500,000 loan and one of its members personally guarantees the loan, the bank could go after that member’s personal assets, despite limited liability. Of course, if a co-owner is the one who has committed some bad deed making them personally liable, you would not be personally liable just for being another co-owner, as long as you did nothing wrong (this differs from a partnership, where you are personally liable for your partners’ wrong-doings).