LLC Answers

I have received a lot of inquiries about whether the use of a limited liability company llc shields a person from having to file for personal bankruptcy if the business is failing and has debts it cannot pay.

The answer to this depends on what you have done in your business.  First, if you had decided to form an LLC when you started your business and then transacted all business in the name of the LLC, then the LLC liability limitation provisions protect you from being personally liable for obligations under those business transactions.  For example, if you signed a vendor contract only in the name of your LLC, then the obligations including any payment ones are those of the LLC not you personally.

In times like these, where both large and small businesses are not making it, those that had formed an LLC are much better off because they are not generally personally liable for any business obligations.  If an LLC business is in dire straits and bankruptcy is the only answer, then it is the limited liability company LLC that files for bankruptcy, not you personally.

Now, if in your business transactions, you agreed to be personally liable for a business debt, this protection would not apply to those deals.  This is because you affirmatively agreed to personal liability for a business debt.

Overall, if you conduct business in the name of the LLC, this is a tremendous benefit of an LLC.  Most people do not think about business failure when starting a business but the LLC protections provide this substantial benefit in the event of a business failure.