LLCs and Personal Liability: Avoiding Personal Asset Liability in LLC Management

May 14, 2021

Avoiding personal liability is the ultimate goal of every individual who forms a Limited Liability Company.  It is in the name—Limited Liability.  Forming an LLC is the first step to avoiding that personal liability for lawsuits or bankruptcies, but too often people make the mistake of that being their only step.  Limiting personal liability is an on-going process that business owners in Texas should be vigilant about following.

LLC Management should be Bear Proof—Protect your personal assets by managing your LLC with veil piercing prevention in mind with Texas Business Attorney Nathaniel Gilbert

LLC Management should be Bear Proof—Protect your personal assets by managing your LLC with veil piercing prevention in mind with Texas Business Attorney Nathaniel Gilbert

Following corporate formalities and rules is an absolute must when operating an LLC.  If your Operating Agreement states that you must keep certain accounting books, hold annual shareholder/member meetings, and draft resolutions and minutes for every decision or major action undertaken by the organization, you’d better be doing those things.  The individual that forms the company and then never takes the time to digest and understand their obligations to the company through the Operating Agreement is bound to run afoul of those rules.  If you are not treating the LLC like a formal company, the Court won’t either, and will “pierce the veil” of protection and hold you personally liable.

Likewise, undercapitalization of the LLC accounts is a huge mistake a lot of single member LLC owners make.  You must keep enough money in the LLC to cover the usual scope of your business: a certain number of months of expenses, funds to run payroll and pay vendors, and money to perform certain functions in your industry.  Disney, LLC, for example, would not be able to say that they only had $5,000.00 in their bank account and that was all the Court could touch in a lawsuit. If the bank account for your LLC is not able to adequately cover the normal course of business for your LLC, you’re likely looking at personal liability for any damages, so be careful with excessive distributions of profit.

LLC management can be tedious and time consuming, but the efforts are worth their weight in gold when it comes to avoiding personal liability.  If you would like to amend your Operating Agreement to something more simple without too many formal obligations, or you need an Operating Agreement drafted, The Law Office of Nathaniel Gilbert is here to help.  Texas Attorney Nate Gilbert can draft your Operating Agreement to read how you want it to read, and help to run your business smoothly and more efficient.  Click here to get in touch with Nate.

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Nathaniel Gilbert is the sole attorney at The Law Office of Nathaniel Gilbert, PLLC. Practicing in the areas of Real Estate and Business, Nate serves the states of Texas, Colorado, and Kansas. He can be reached at 726-999-0087.