Does an LLC Really Protect You?

Does an LLC Really Protect You?

When you own a business, either individually or with others, there are certain types of risks that are inherent. Reducing your own personal liability is a top priority. For this reason, a limited liability company (LLC) is often recommended as a basic business structure. However, as experienced Lake Jackson business formation attorneys, we want you to be aware of some of the risks that still exist and the steps you can take to protect yourself. 

Liability Protection Available by Forming an LLC

A limited liability company, otherwise referred to as an LLC, is one of the most common types of business structures in Texas. Under Chapter 101 of the Texas Business Organizations Code (BOC), rather than being a partnership or a corporation, it is a distinct entity in which owners are referred to as members. An LLC can consist of one person alone or it may have multiple members and is similar to both a general and limited partnership in that all of them are free to participate in management duties. In addition to flexibility, it also offers tax advantages but, as the name implies, one of the biggest benefits is its ability to reduce personal liability risks.

LLCs are generally valued as a business structure in that they protect the personal assets of members. If you are sued or face creditor claims, only the assets of the LLC itself can be subject to a judgment lien, with few and extraordinary exceptions. The same is true if the business fails. This ability to reduce personal liability risks and protect property, such as your family home, car, bank accounts, or other investments, is one of the major reasons to choose an LLC.

However, it is important to know that the liability protection an LLC affords members does have limits. In very limited circumstances, you can still be held personally liable for certain act or omissions, which is known as “piercing the corporate veil.”

Additional Steps to Reduce Your Risk

An LLC can be formed by filing the appropriate forms through the Texas Secretary of State and preparing the appropriate organizational documents. To further reduce personal liability risks, take these additional steps:

  • Confer with an insurance expert and invest in liability insurance coverage;
  • Always act in the LLC’s name when signing contracts or other legal documents;
  • Do not mix personal assets with the LLC;
  • Review contracts and loan documents carefully to ensure there are no clauses allowing for personal liability; and
  • Confer with a business attorney to ensure the documents are only completed, but that those documents are completed properly.

Contact Our Brazoria County Business Formation Attorneys located in Lake Jackson, Texas

To find out more about how to reduce your personal liability as a business owner, contact our Brazoria County business formation attorneys located in Lake Jackson, Texas at Cordoba Law Firm, PLLC, and request a consultation in our Lake Jackson office today.