How do I prepare my business so that my personal finances would be protected if my LLC were to fail?

Asked on November 13, 2012 under Business Law, New York


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

The most important step is what you've already done: having a limited liability company. The owner(s) of an LLC are not generally liable for the debts or obligations of the LLC. To enhance the protection:

1) Make sure you keep your personal finances fully separate: if you comingle money or use the business to pay personal expenses, that can sometimes let any creditors reach through the LLC and get to your personal assets. (This is called "piercing the corporate veil.")

2) Do not personally guaranty any debts--if you do those guarantees are enforceable.

3) Have adequate insurance to deal with any liability.

And bear in mind that you cannot completely insulate yourself: for example, the responsible managing member of an LLC can be held liable for certain tax debts. But you can protect yourself from the vast majority of business-related debts and obligations.

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