Can an LLC owner be sued personally?: Someone told me that a customer could sue the LLC and me personally. But I don't think that's right. I'm deciding whether to be a sole proprietor or have an LLC. Liability protection is my main concern. If an LLC will not protect me, I don't see much point in becoming one.
H's answer: The general rule is that the owners (called members) of an LLC are not liable for the debts and obligations of the LLC. There are exceptions, however, to the general rule. The biggest exceptions are: 1. The owner is always liable for his or her misconduct that causes harm. If you are driving a cab for your LLC that operates a cab business and you run a red light and kill or injure somebody, you will be sued and you will be liable because you ran the red light. It is not a defense to the lawsuit that you were working for the LLC at the time you ran the red light. P.S. The LLC will also be sued and be liable because you were working for the LLC when you ran the red light. 2. Often a member is required to sign a personal guaranty as a condition to the LLC engaging in a business transaction. Common transactions involving personal guaranties are loans to the LLC and leases of real estate to the LLC. Lenders and landlords frequently require the members of the LLC to sign a personal guaranty. This is a contract in which the signer(s) agree to satisfy or pay the LLC's debts and obligations if the LLC fails to do so. If you want to minimize your liability for the LLC's debts or obiligations, do not sign any personal guaranties. There are also other ways that an owner of an LLC can become liable for the LLC's debts and obligations. The bottom line however is easily summarized as follows: 1. Never EVER EVER operate a business as a sole proprietorship or a general partnership because if you do, you are 100% LIABLE for EVERYTHING that goes wrong. 2. Always operate a business through a corporation, limited liability company or limited partnership because the general rule is the owners (other than general partners of LPs) are not liable for the debts or obligations of these types of entities. It is a no-brainer. Sometimes liable is better than always liable. Consult with an experienced business lawyer in the state where you will operate a business to determine which type of entity is best for that state. My response to your question(s) is not legal advice for your specific situation. My response discusses general legal concepts. The fact I responded to your question(s) does not create an attorney client relationship between you and me. Because I am licensed to practice law only in Arizona, my statements are general statements about Arizona LLC law rather than the law of any other state. The facts of your situation and the applicable federal and state law must be considered before taking action. I recommend that you contact an experienced attorney who is licensed to practice law in the jurisdiction that will govern your specific transaction and who has experience with the specific areas of law applicable to your situation.
Discuss Please: Jonathan, Gary, and Ricardo are active members of a partnership called Swim City. The partnership manufactures, sells, and installs outdoor swimming pools in the states of Arkansas and Texas. The partners want to continue to be active in the management and to expand the business into other states as well. They are also concerned about rather large judgments against swimming pool companies throughout the United States. Based on these facts only, discuss whether the partnership should incorporate. Be sure to provide the pertinent concepts from the Business Organizations chapters that would apply in this case.
H's answer: Repeat after me three times: Never ever ever operate a business as a general partnership because EVERY partner is 100% liable for everything that goes wrong!!! Always operate a business through a corporation or a limited liability company. Ask a business attorney in the state where you will form the entity which of these two types of entities is best in that state for your business. My response to your question(s) is not legal advice for your specific situation. My response discusses general legal concepts. The fact I responded to your question(s) does not create an attorney client relationship between you and me. Because I am licensed to practice law only in Arizona, my statements are general statements about Arizona LLC law rather than the law of any other state. The facts of your situation and the applicable federal and state law must be considered before taking action. I recommend that you contact an experienced attorney who is licensed to practice law in the jurisdiction that will govern your specific transaction and who has experience with the specific areas of law applicable to your situation.
I own 50% of a California LLC that owns three properties. Can I sell my 50% to anybody or do I need the approval of my partners?: Two are income properties. The third one is a house in foreclosure.
H's answer: Did the members sign an agreement that restricts or prohibits transfers? If so, you are bound by the agreement. If not, you will need to research California LLC law or consult with a California LLC lawyer for your answer. In Arizona, where I have formed over 2,450 Arizona LLCs, the law provides that a member of an Arizona LLC is free to transfer membership of the LLC to any person or entity unless the members have signed an agreement (usually called an Operating Agreement) that restricts or prohibits the transfer. My response to your question(s) is not legal advice for your specific situation. My response discusses general legal concepts. The fact I responded to your question(s) does not create an attorney client relationship between you and me. Because I am licensed to practice law only in Arizona, my statements are general statements about Arizona LLC law rather than the law of any other state. The facts of your situation and the applicable federal and state law must be considered before taking action. I recommend that you contact an experienced attorney who is licensed to practice law in the jurisdiction that will govern your specific transaction and who has experience with the specific areas of law applicable to your situation.