Ifmy business is incorporated, can I be sued personally?
Get Legal Help Today
Compare Quotes From Top Companies and Save
Secured with SHA-256 Encryption
Ifmy business is incorporated, can I be sued personally?
I closed my business last year and a uniform rental co ismpany going after me for the remaining of the contract. Can they win since the business is incorporated?
Asked on December 5, 2011 under Bankruptcy Law, Illinois
Answers:
L.P., Member, Pennsylvania and New Jersey Bar / FreeAdvice Contributing Attorney
Answered 12 years ago | Contributor
Thank you for submitting your question regarding personal liability for the debts of a corporation. If a business is organized as a limited liability company or corporation then you and your business will be viewed as separate entities for legal purposes. Since the business is treated as a separate entity, you cannot be held personally liable for the debts of your corporation. This means that even if your business is unable to pay all of its debts, debt collectors cannot come after you personally to satisfy the debt. They cannot take your personal property or real property to liquidate to pay for the debt of your business.
That being said, there are ways that you could be held personally liable for the debts of the business. Usually when someone sets up a limited liability company or corporation, they will use their home or some other real estate that is personally owned in order to secure the business loan. If your business is secured with a loan attached to your property, then you would be held personally liable for the debt of the business.
If your business defaults on any loans, then the banks will attempt to collect the debt from you personally. If your house is attached as collateral to the loan and you do not pay the debt of the corporation, the bank can attempt to foreclose on your home. The bank would then use the proceeds from the sale of the house to pay for the business debt.
You can also be held liable if you signed service agreements or contracts that list you personally liable for the payment of the contract. These terms can often be found in the fine print of a contract and in essence you will have waived your protection from personal liability.
L.P., Member, Pennsylvania and New Jersey Bar / FreeAdvice Contributing Attorney
Answered 12 years ago | Contributor
Thank you for submitting your question regarding personal liability for the debts of a corporation. If a business is organized as a limited liability company or corporation then you and your business will be viewed as separate entities for legal purposes. Since the business is treated as a separate entity, you cannot be held personally liable for the debts of your corporation. This means that even if your business is unable to pay all of its debts, debt collectors cannot come after you personally to satisfy the debt. They cannot take your personal property or real property to liquidate to pay for the debt of your business.
That being said, there are ways that you could be held personally liable for the debts of the business. Usually when someone sets up a limited liability company or corporation, they will use their home or some other real estate that is personally owned in order to secure the business loan. If your business is secured with a loan attached to your property, then you would be held personally liable for the debt of the business.
If your business defaults on any loans, then the banks will attempt to collect the debt from you personally. If your house is attached as collateral to the loan and you do not pay the debt of the corporation, the bank can attempt to foreclose on your home. The bank would then use the proceeds from the sale of the house to pay for the business debt.
You can also be held liable if you signed service agreements or contracts that list you personally liable for the payment of the contract. These terms can often be found in the fine print of a contract and in essence you will have waived your protection from personal liability.
IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.