If the corporation or LLC cannot pay its debts, creditors can normally only go after the assets owned by the company and not the personal assets of the owners. However, the business owner can also be held responsible for corporate or LLC debts in certain situations.
Yes, after obtaining a Judgment against you, a creditor may seek to satisfy its judgment by levying on any property you own, including any interests you own in a business.
Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures. Corporations also require more extensive record-keeping, operational processes, and reporting.
Like most states, California doesn't permit personal creditors of an LLC member to have a court order that the LLC be dissolved and its assets sold to pay off the creditor. So, fortunately for you and your fellow LLC owners, you don't need to worry about your company involuntarily closing due to your personal debt.
The short answer is yes, credit card companies have the legal right to sell delinquent accounts to third-party debt buyers. This practice is explicitly permitted under federal law and regulated by the Fair Debt Collection Practices Act (FDCPA) and other consumer protection statutes.
If your business was created during the course of your marriage, the courts could consider your business as marital property. If your business was formed before your marriage, your business should be considered separate property, an asset acquired before your union.
An LLC's money or property cannot be taken by creditors of an LLC's owner to satisfy personal debts against the owner.
By running your business as a corporation instead of a sole proprietorship, you generally protect yourself from personal liability for the business's actions or debts. In essence, the corporate veil ensures that the business and its owner are treated as distinct legal entities.
When you set up an LLC, the LLC is a distinct legal entity. Generally, creditors can go after only the assets of the LLC, not the assets of its individual owners or members. That means that if your LLC fails, you are risking only the money you invested in it, not your home, vehicle, personal accounts, etc.
Intentional acts: LLC protection does not shield owners from personal liability for illegal, reckless, or intentional acts. For example, if an owner knowingly violates laws or causes harm, personal assets can still be at risk.
According to Section 524 of the U.S. Bankruptcy Code, after you file bankruptcy no one can take action against you if the debt has been discharged. It is illegal for creditors to contact you about payments for the discharged debts.
If you get a summons notifying you that a debt collector is suing you, don't ignore it. If you do, the collector may be able to get a default judgment against you (that is, the court enters judgment in the collector's favor because you didn't respond to defend yourself) and garnish your wages and bank account.
Given this separate legal existence, one of the primary benefits of doing business through a corporate entity is the general rule that individual shareholders and officers are usually not personally liable for the debts and liabilities of the corporation.
Limited Personal Liability: S corps are separate legal entities from their owners, shielding shareholders' personal assets. Business Assets at Risk, Not Personal Ones: Only corporate assets are vulnerable to judgments against the company.
Generally, shareholders are not personally liable for the debts of the corporation. Creditors can only collect their debts by going after corporate assets. Shareholders will usually be on the hook if they cosigned or personally guaranteed the corporation's debts.
C corporations provide limited liability protection to owners, who are called shareholders, meaning owners are typically not personally responsible for business debts and liabilities.
If you're an owner of a corporation or LLC, you are a separate entity from the business, and the business isn't responsible for your personal debts. But while creditors generally can't take your business assets to pay your personal debts, they can take funds your business owes you.
Your business can't pay off personal credit cards
This is not the debt of the companyas it's your personal debt. This applies even if you're a sole trader, freelancer or contractor. It's important to keep your company and personal finances completely separate.
Understanding an LLC's limited liability protection
This separation provides what is called limited liability protection. As a general rule, if the LLC can't pay its debts, the LLC's creditors can go after the LLC's bank account and other assets.
LLC owners, known as members, enjoy personal liability protection, meaning their personal assets are generally not at risk if the business incurs debt or legal issues. This protection, however, doesn't necessarily extend to divorce situations.
When it comes to protecting your business in a divorce in the state of California, which is a community property state, the general rule of thumb is that each spouse is entitled, with exceptions, to half of whatever assets and liabilities they acquired after their marriage and before their separation.
If the business was formed during the marriage, it is also marital property and subject to distribution. That doesn't mean necessarily that a court is going to have money come from the business to pay your ex, but that could happen.