Many business owners make the decision to form an LLC because it does limit a lot of risks for owners. It exists as a separate entity from its owners and managers. However, there are some risks that a business owner is not exempt from in certain circumstances.
An LLC does not protect the owner or manager when there has been poor personal conduct, negligence or criminal acts.
Think about it. If it protected everyone against everything, then someone would feel they could have free reign to make any type of decision regardless of the consequence. Here are a few examples of legal risks for business owners. If the LLC business owner has been involved in an “at fault” accident using the company vehicle, they can be held liable personally in addition to the company being held liable. Also, if there has been theft or any embezzlement of funds, the business owner will be held responsible as well.
An LLC will not protect against someone with poor management skills.
If you are old enough to have had at least 5 jobs in your lifetime, it is probably 90 percent accurate to say that you have had a boss that was not cut out to be a boss! Unfortunately, not everyone is suited to run a business. There is so much involved in business ownership. When a manager is not educated properly and does not know how to make wise business decisions or manage his employees properly, the company can take serious losses. An LLC will not protect from that! Unfortunately, if you work for a company that has poor management, you could be subject to being a victim of their very bad decisions.
Although state laws say that LLC owners are not help personally liable, this isn’t always the case.
Many state laws do say this but there are multiple vendors as well as banks that will not do business with you unless you personally as the business owner say that you will pay any debt that the company does not.
These are a few of the possibilities of risks that can be association with an LLC. However, if you act responsibly, most of these will never come to fruition. One suggestion is to do your research, consult an attorney, make wise decisions and take advice from people who have walked in your shoes. For the most part, forming your business into an LLC offers many great advantages.
Refer to this article in our knowledge center which discusses a variety of benefits to forming an LLC.
If you are considering starting a corporation or forming an LLC, please let Maxfilings help guide you along the way. Browse our blog and knowledge center for a variety of details on this as well as other general business information.