Can you be personally sued if your business is a corporation or LLC?
When you are opening a new business, you receive a lot of advice to create a business entity, either a corporation or a limited liability company (LLC), to limit your liability. This means that if the business gets sued or takes on a monetary obligation, only the company pays that obligation or the court judgment. So, does this mean that you cannot personally get sued if your business is a corporation or an LLC?
The answer is there are situations where you can be personally sued even if your business is set up as corporation or an LLC. You may be asked to sign a personal guarantee for an obligation of the business, especially when a business is new and does not have much of an established track record. It is very common with store or office leases and bank loans. When you sign a personal guarantee, you explicitly agree to become liable for the assets of the company.
If you sign a contract and the contract does not explicitly state that one of the parties is your business corporation or LLC then you are signing as a corporate officer or a member of the LLC, you may be signing in your personal capacity and not on behalf of the company. In such circumstances, you may be sued instead of the company being sued. Be very careful of signing anything before the corporation or LLC is actually formed. You should first file the necessary paperwork with the New Jersey Division of Revenue.
If you are required to collect sales tax or have employees, you are personally liable for the taxes that you are required to withhold and send to the state.You may also be personally sued if your actions, even though done on behalf of your corporation or LLC, were negligent, illegal or constituted fraud.
However, in most cases, the limited liability protections given to owners of corporations and LLCs will protect you from being sued personally. This is why using limited liability entities for business are highly recommended to business owners.
Robin Gronsky helps businesses from start-up through growth through sale. Contact her at Rgronsky@Gronskylaw.com or (201) 251-8001 to find out how she can help your business before it faces legal problems.