3 Situations Where an LLC Doesn’t Offer Personal Liability Coverage

3 Situations Where an LLC Doesn’t Offer Personal Liability Coverage

3 Situations Where an LLC Doesn’t Offer Personal Liability Coverage

A limited liability company’s liability coverage isn’t absolute. That’s what the “limited” part of “limited liability company” is all about. If you want to safeguard yourself and your company to the fullest extent possible, then you will need to educate yourself about what will and what won’t leave you personally liable for your LLC’s debts. We’ve included some of the biggest risks to your liability coverage below. For further reading on how to protect your business against lawsuits, we have something on that here, too.

1. Poor Personal Conduct

Among the most enjoyed benefits offered by limited liability companies is that its owners, known as Members, can’t be held personally responsible for the business’s debts just because they’re the ones in charge. Still, it won’t shield you from your own negligence or from your own mistakes. It also won’t protect you from the consequences of any crimes, such as fraud. For example, if you have your own limousine service and accidentally run someone over, you won’t be able to use your LLC’s liability coverage as a get-out-of-jail-free card for medical bills or, you know, actual jail time. Your employees will be similarly responsible for their own actions as well.

You also need to avoid mixing personal and business matters to protect your liability coverage, particularly when it comes to finances. Keeping separate business and personal bank accounts will go a long way for these purposes.

2. Mishandled Trust Fund Taxes

You might not know about trust fund taxes and how they relate to your liability coverage. Trust fund taxes include things like employee payroll withholdings for Social Security and Medicare, as well as the Florida state sales tax paid by your customers. It is imperative that the LLC forwards these trust fund taxes to the appropriate federal or State of Florida agencies. This isn’t your money that you’re holding on to – it belongs to the government. Not passing it on to the proper authorities can cause you to lose your liability coverage. That means that creditors will be able to come after your personal assets. And that’s not even counting for the severe fines and other penalties that you will doubtlessly incur!

3. Personal Guaranties

Members also incur liability whenever they provide a personal guaranty when entering into a contract on the LLC’s behalf. This guaranty essentially suspends your limited liability coverage for the purposes of a specific agreement. When trying to get a loan for the company from the bank, for instance, will often require a personal guaranty from one of the owners. That debt is then transferred to the Member who provided the guaranty if the LLC can’t repay the loan.

When launching a business, it’s crucial that you have a solid foundation that will encourage growth. As a firm of entrepreneurs ourselves, we know how to get businesses started off the right way. Hiring an attorney reduces the chance that your company will run into trouble down the line and helps ensure that you’re armed with the information and documents that you need for success. For assistance with starting your business or growing the one that you already have, visit our Service Page or contact us by calling (727) 279-5037.

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FL Patel Law PLLC is a boutique business law firm dedicated to entrepreneurs and companies.

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