If my husband and I own a company and the company gets sued, will our personal property be in jeopardy?

Is our home at risk? Should I remove my name from the company?

Asked on August 13, 2012 under Business Law, Michigan

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

If the company is a partnership--that is, if it is not a corporation or LLC--then there is no "company" in a legal sense; there is only you and your husband. If the company incurs liability, you incur liability.

On the other hand, if the company is a limited liability company (LLC) or corporation (inc.), then you would be protected from most business-related liability, such as for breach of contract, business loans (unless guaranteed personally), etc. That's because a LLC or corporation is its own separate legal entity; liabilty against it does not transfer to its owners.

There is some liability that you cannot escape, even with a LLC or corporation. For example, if you personally commit a tortious act (personally run someone over with the company car; personally steal or defraud; personally defame someone; etc.), you can be sued personally as the tortfeasor--the person committing the wrongful act. Certain tax liabiltiy can attach to officer or manager who was responsible for it (i.e. Uncle Sam can hold you liable in many cases if you cheat him). And if you personally guaranty a debt, you are liable for it. That said, the best protection is to run your business through a LLC or corporation, and if you have not set up one yet, do so.

If you have a corporation or LLC and you also have adequate insurance, including an umbrella and general liability policies, on your business, that should be adequate protection for your  personal assets in almost all cases.


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