Generally, no, you are not personally liable for your LLC's debts because the LLC is a separate legal entity, protecting your personal assets (the "corporate veil"). However, you can become personally liable if you sign a personal guarantee for loans, commit fraud, fail to keep business and personal finances separate (piercing the veil), or are directly responsible for harm or unpaid employee taxes.
Limited liability essentially puts a wall up between your business and personal assets. For instance, if the business owes money to a creditor, that creditor can't pursue your personal assets to pay off the debt – they can only go after LLC's assets. That's because you don't own the business.
The general rule is that members of an LLC enjoy limited liability and cannot be sued personally for activities or debts of the LLC. In other words, the “corporate veil” of the LLC legal structure protects its members from personal liability.
Most business credit cards require a personal guarantee when you apply. This means you're personally liable for the debt, even though the card is issued to your business.
Because most suppliers, banks, and landlords know that corporate shareholders and LLC members aren't personally liable for business debts, they often won't extend credit or lend money to a small corporation or LLC without an owner's personal guarantee: a legally binding agreement that the owner will repay the debt if ...
In fact, the owner of a LLC can be held personally liable for business debts if the owner: Signs a personal guarantee of the loan or other business debt and the LLC defaults on its payments. Personally and directly harms or injures someone. Fails to deposit taxes withheld from the LLC's employees' wages.
You take your losses and move on. In most states they just auto close the LLC for you after a period of time of not paying their fees, but some states (like CA) will keep accruing the fees until you close it and make you pay up.
If you want to avoid personal bankruptcy, then you want to make sure that you are a separate legal entity from your business. As an LLC or corporation, you have no personal liability in regard to the debts of your businesses.
LLCs are incredibly hard to sue, if not litigation proof, if they are maintained correctly. The problem is that most LLC owners don't do the things necessary to maintain their LLC's legal status. If you don't treat your LLC like an LLC, then when a lawsuit comes around the courts won't either.
By forming a limited liability company (LLC), you and any other members of the LLC generally cannot be sued and held personally liable for debts incurred by the business.
Under the law, an owner of an LLC (generally called a "member") has no personal liability for the obligations of the LLC. Creditors of the LLC can recover solely against the assets of the LLC, and not against the personal assets of the members of the LLC.
Common LLC mistakes include commingling funds, skipping an operating agreement, ignoring compliance (annual reports, taxes, registered agent), using a home address for business, and mismanaging tax planning, all of which risk losing liability protection and creating legal/financial issues, emphasizing the need for separate accounts, clear documentation, and professional advice.
Want to make your assets virtually untouchable by creditors and lawsuits? Equity stripping may be the answer. This advanced technique involves encumbering your assets with liens or mortgages held by friendly creditors, such as an LLC or trust you control.
A creditor can only get a charging order against a member of an LLC and cannot go after the LLC's assets directly. They must instead obtain a charging order from a court, which is not a preferred remedy for a creditor.
Generally, an LLC does not affect your personal credit unless you personally guarantee a loan or credit line for the business. In those cases, if the business fails to repay, the lender can report late payments or defaults on your personal credit report.
New LLCs can deduct up to $5,000 of startup costs and $5,000 of organizational costs in the first year if total costs don't exceed $50,000. Qualifying expenses include state registration fees, legal fees to form the LLC, initial marketing, market research, business plan development, and accounting software setup.
The Worst Kinds of Debt to Have
Bankruptcy generally does not cover debts like child support, alimony, most taxes (especially recent ones), student loans (unless undue hardship proven), court fines, restitution, and debts from fraud or drunk driving, plus debts not listed on the petition or incurred for luxury goods shortly before filing. These non-dischargeable debts remain even after bankruptcy, meaning you're still responsible for paying them, notes.
Courts can issue a discharge ruling when the debtor meets the discharge requirements under Chapter 7 or Chapter 11 of federal bankruptcy law, or the ruling is based on a debt canceling. A canceling of debt happens when the lender agrees that the rest of the debt is forgiven.
If you're one of several members and simply wish to leave:
When a limited liability company goes “out of business,” the company dissolves and goes through the “winding up” process. During the winding-up process, the LLC and its members must resolve all outstanding legal matters, including debts and contractual obligations the company owes.