A lot of people transform their business into an LLC (Limited Liability Company) in the interest of keeping their assets secure and their person out of jail should something unfortunate happen in the course of running their business. Sometimes bad things happen, after all, and that’s why there is an entire subset of lawyers and legal minutia dedicated to liability and business claims.
However, there are certain instances in which having the benefits of an LLC will not protect an invested individual from legal recourse. Examples of this include when an LLC owner personally and directly injures someone, fails to deposit taxes withheld from employees, or even begins to use the LLC as an extension of his or her own personal affairs, rather than a separate legal entity.
Now, obviously there are always some common sense exceptions to the rule. Just because you have an LLC doesn’t mean you can get away with a hit-and-run in the company car. Just because you have an LLC doesn’t mean you can use it as some sort of tax shelter and personal expenditure account. Some of these may seem like no-brainers, but the last one is especially important. If the LLC owner does little or nothing to distinguish the company from their own personal affairs, and should issues arise that require court involvement, the judge may rule that there is no real difference between the individual and the LLC. This typically means a court-ordered dissolution of the limited liability normally afforded to owners and members, and may require they use their personal assets to right any wrongs.