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.

  • So are you asking about owners or directors? They are not necessarily the same person.
    – Greendrake
    Sep 14 '20 at 7:59
  • If it's a single owner, he is the director off course. Sep 14 '20 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.
    – Nij
    Sep 14 '20 at 11:45

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.

  • 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
    Sep 14 '20 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) Sep 15 '20 at 8:54
  • Thank you ohwileke, well answered. Do you have any examples of 'vicarious tort liability'? Sep 15 '20 at 9:00

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