Archive for Advanced LLCs

Limited Liability: Statutory Exceptions Part 2

Many incorrectly believe that if you form a limited liability entity such as an LLC that there is no personal liability. This is untrue.

There are federal statutory and usually state statutory obligations. The relevant federal  statutes provide that so called “responsible parties” are personally liable for the non-payment of trust fund taxes. IRC Section 6672.

Trust fund taxes are the taxes withheld from employees paychecks to be paid to the federal government on behalf of the employee. These taxes include social security, medicare and income.

The responsible party is the person(s) who is responsible for collecting or paying over these taxes and who willfully fails to do so. The parties can include: officers or employees of a corporation and the equivalent persons in LLCs and other entities. Often these persons have to prove that they are not the person who has this responsibility.

This personal liability should it arise can not be erased through personal bankruptcy. That is these debts may never go away.

Many small business owners who are struggling  financially find this a convenient source of funds. This is the last source of funds that one should use.

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Limited Liability: What does it really mean? Part 1-Definitions

The term limited liability gets used often but without a full understanding of what it really means. Business people want it but perhaps are not really sure what it means. Most lawyers and other professionals think they know what it means too. But do they really know? This post and the ones that follow will examine this legal principle in some detail.

Whether you consult, Black’s Law Dictionary or the popular Wikipedia, you will find that it means that the owner/investor in the business entity can lose his/her investment but no more. In essence, the owner can lose what they invest no more/no less.

If the owner/investor is also active in the business, however, he/she is liable for his/her personal negligence. That is, if the investor/owner commits a tort within the scope of business he/she is responsible for it. Also, it is quite normal for investor/owners in small businesses to be a personal guarantor of business bank debts or other debts such as leases.

Thus, if the investor/owner  has not committed a tort nor personally guaranteed any debts, he/she will only lose his/her investment.

There may also be statutory responsiblities for certain debts that  will be discussed later.

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