2

I own 100% ownership of an LLC. I started this LLC because everyone gave me advice that if the company is sued, the banks won't go after my car, my house or etc.

As I dig deeper into the legal framework I realized that in many cases the directors are always being personally implicated in tort law suits. Some have to pay the lawsuits for the rest of their lives. Some have their assets confiscated.

A company always acts on the direction of it's directors and a tort lawsuit can be filed on the directors. It becomes more incumbent if there is only one director of the company.

3
  • So are you asking about owners or directors? They are not necessarily the same person.
    – Greendrake
    Commented Sep 14, 2020 at 7:59
  • If it's a single owner, he is the director off course. Commented Sep 14, 2020 at 9:58
  • That doesn't follow at all. Hence the difference in names for the roles. One owns the company, one is responsible for its direction.
    – user4657
    Commented Sep 14, 2020 at 11:45

2 Answers 2

4

If the company makes a contract, and as a result of that contract it owes more money than it has, then the company goes bankrupt and the owners and directors can walk away from it. This covers the owners/directors in cases of ordinary business contracts.

However if an employee (including an owner or director) does something sufficiently harmful then under the law of torts they can be personally liable as well as the company. Examples are negligence and fraud; if you build someone's new roof while acting as an employee and the roof leaks then its likely to be the company on the hook for damages. However if you misrepresented your qualifications or acted negligently then you might well be personally liable.

This is all very general. Details are going to be specific to your jurisdiction.

So the answer is that having a company is certainly better than making every contract in your own name, but its not complete cover.

You can probably get insurance if this is a concern, but its likely to be expensive.

4
  • 2
    A couple of additional considerations. It is rare that someone with a single member LLC will be allowed to enter into a significant long term contract posing a risk of LLC liability without a personal guaranty from an owner or manager of the LLC. And, if an LLC is intentionally uncapitalized anticipating a high risk of liability, the LLC protection can be invalidated as a fraudulent transfer. Also if the corporate entity is not respected in practice, the alter ego doctrine a.k.a. veil piercing, may be available. The LLC protects you against vicarious tort liability, but not for your own acts.
    – ohwilleke
    Commented Sep 14, 2020 at 22:57
  • Thank you for the answer, interesting you mention about contracts. But wouldn't a contract breach is always harming another party.....hence the plaintiff can consider it a tort and hold the person acting behind the company responsible (which in this case is the single director) Commented Sep 15, 2020 at 8:54
  • Thank you ohwileke, well answered. Do you have any examples of 'vicarious tort liability'? Commented Sep 15, 2020 at 9:00
  • @user1034912 Business hires an employee who drives a company car and gets in an accident where the employee is at fault on company business. The liability of the firm for the car accident under a respondeat superior theory is vicarious tort liability. A breach of contract is not tort liability and there is not liability for breach of contract in the absence of a guarantee.
    – ohwilleke
    Commented Sep 12, 2022 at 23:26
0

First, the case of a badly run business, that just doesn’t make enough money. Banks won’t lend you money so there will be nothing to pay back. Suppliers will tend not to deliver without immediate payment, again nothing to pay back. If you extracted money from the company, you may have to pay it back. In the UK, it is illegal to pay dividends if you then can’t pay your bills, so you’d have to repay them. Loans to the owner must be repaid. Taking money out of the till gets you into trouble and has to be repaid. Salary will likely be safe.

Now if something bad goes wrong: If the company causes damage that leads back directly to you, then you will be personally liable. Assume the company had two owners. If you make a bad decision the other owner might say that this wasn’t the company’s decision, but your personal decision.

Look at “breach of contract”. You have a removal company. Not removing furniture on the promised date could cost a lot of damages. If your removal truck breaks down, your company is liable. You are personally safe. If you find out the customer is the person who stole your girlfriend 30 years ago and stop the removal, that is also breach of contract, but you would be personally responsible.

With vicarious tort liability, we can assume that a company or company director wouldn’t commit a crime, but that a crime would be because of a personal decision if the owner. So the owner would be personally liable. (That’s also a situation where a second owner would insist that you pay damages personally, and not the company).

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .