{"id":1940,"date":"2016-05-03T08:13:31","date_gmt":"2016-05-03T12:13:31","guid":{"rendered":"http:\/\/keysolutions.us\/blog\/?p=1940"},"modified":"2016-05-03T08:13:31","modified_gmt":"2016-05-03T12:13:31","slug":"how-to-lose-your-limited-liability-protection","status":"publish","type":"post","link":"https:\/\/keysolutions.us\/blog\/how-to-lose-your-limited-liability-protection\/","title":{"rendered":"HOW TO LOSE YOUR LIMITED LIABILITY PROTECTION"},"content":{"rendered":"

To protect your hard-earned assets, every business owner should operate in the form of a limited liability legal entity. We often hear business owners say that they don\u2019t need a limited liability legal entity because they have insurance. If they get sued, their thought process is that the insurance company will pay for all damages. When you ask these owners how much insurance they carry, here is a quick version of such a conversation. \u201cI have $2 million of insurance coverage.\u201d \u201cWhat happens if the claimant is awarded $3 million?\u201d \u201cH\u2019mm, I never thought about that.\u201d While no business should operate without insurance coverage, in today\u2019s litigious society, insurance coverage is not a cure all.<\/p>\n

We have always taken the position that the second-worse form of ownership is that of a sole proprietor. We believe that the worse form of ownership is that of a general partnership because you are not only responsible for your acts, but those of your partners.<\/p>\n

So what type of entity should you form? Common forms of ownership include corporations, limited liability companies (LLCs), limited partnerships (LPs) and limited liability partnerships (LLPs). The ideal type of limited liability ownership may vary by state and the business owner should always first consult with an experience business attorney and an experienced CPA or enrolled agent before creating such an entity.<\/p>\n

There is often a misperception that the mere creation of a limited liability entity protects the business owner from all claims against the business because of a perceived limited liability veil or curtain. That is not always the case.<\/p>\n

This limited liability veil can be pierced by certain acts often referred to as \u201cpiercing the corporate veil.\u201d One such exception is where the business owner (or an officer, manager, or employee) is personally involved in an act that results in harm or loss to a creditor of the business entity. For example, an employee is driving a business car on company basis and is found to be at fault and caused serious harm to a third party.<\/p>\n

However, piercing the corporate veil is often far more subtle because the business owner is not vigilant in respecting the legal entity. We have often preached to a business owner that \u201cIf you do not respect your own legal entity, why do you think any judge or jury will do so?\u201d How do business owners pierce their own corporate veil? A few examples include:<\/p>\n

 <\/p>\n