Taylor Legal Blog

How Limited is Your Entity's Limited Liability? [VIDEO]

Posted by Katherine L. Taylor, Attorney and CPA, Chief Problem SolverFeb 18, 20210 Comments

Hi, I'm Katherine Taylor, the lawyer for business owners.

If you are a business owner who formed an entity because you wanted to achieve that limited liability that entities are known for, do you wonder sometimes whether that really is the case? Is there truly complete, limited liability for the owners of the business? My answer to you is, unfortunately, no, there isn't necessarily complete limited liability for the owners of the business.

While limited liability is the primary reason most people form an entity, whether it's an LLC or corporation, to run their business, there are certain circumstances under which the owner could potentially be liable for debts of the business. I'm going to go over those because they are situations that you, as an owner, can typically avoid if you work to do that.

So the first situation is piercing of the corporate veil. What this means is that if you own an entity and run a business, but you don't really follow the guidelines or the statutes in terms of how the entity should be run -- if you're a corporation, you don't have your meetings, you don't have your articles of incorporation updated, for example then what could potentially happen is if there's a claim against the entity, the claimants could try to pierce that veil and get to the owner's individual assets.

The second situation is that many times the owners of an entity are liable for the company's tax obligations. I should say, the unpaid tax obligations of an entity. So, for instance, if the company has unpaid sales and use taxes or even income taxes many times those taxing authorities are not going to let the owner of that entity off the hook. So make sure your taxes are paid.

The third is personal guarantees. I run into this all the time where a business owner on behalf of the business enters into a commercial lease, and the landlord requires a personal guarantee. Well, in that situation, even if the entity goes out of business or goes bankrupt, the individual who signed that individual guarantee can be personally liable.

The fourth situation is for professional negligence. Anybody that has a professional license is not going to be let off the hook by their state statutes if they are negligent in providing their services.

But even with all those exceptions, most of the time, I would say 99% of the time, if you form an entity for the purpose of providing you that limited liability you will be fine. You just have to make sure that those circumstances that I just mentioned are covered so that you can make sure your personal assets cannot be attached.

Please call me if you would like more information. My name is Katherine Taylor. I'm the lawyer for business owners, and you can find me at www.taylorlegal.com. Thank you!


5850 Waterloo Rd

Suite 140

Columbia, MD

21045 443-420-4075

443-420-4075 (fax)