0

Say you operate a quasi-business. You make money, but the operation is categorized as a hobby by the IRS and isn't actually registered.

If someone sues you, can you quickly form an LLC and then "transfer the blame" to the LLC, or will the court see what you're doing and still make you liable?

5

No

An LLC that didn’t exist at the time of the act or omission that caused the loss being sued over is not a valid defendant. They would sue you personally and all of your assets, including the LLC, would be available to the creditor.

0

Forming an LLC would not protect your assets in this case. To hold your assets apart from your LLC, you would have to demonstrate the "arms-length" distinction between yourself and the LLC. This isn't there so any lawsuit arising from your personal/professional actions would subject your personal assets to recovery by the aggrieved party.

It is important to know that just having an LLC doesn't protect you, it needs to be run in such a manner as to make it a distinct entity. Also if you do something in the LLC (or any company) that can be seen as not in your companies best interest (like embezzling from a client) you can still be held personally liable, even if the transactions were done through the company.

  • Would be helpful to explain how or why the arms length principle would be applicable here. In law, it’s used as a measure of the relationship between parties to a transaction. – A.fm. Sep 3 at 4:08

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.