Personal Responsibility for Your Own Actions If you form an LLC, you will remain personally responsible for any crime you commit during the course of your LLC business. Members are not responsible for the debts or obligations of an LLC. However, members are required to make the required capital contributions. The operating agreement may establish the penalties for not doing so.
A member who votes for an illegal distribution is personally liable to the LLC for the part of the distribution that exceeds the maximum amount that could have been legally distributed. If the corporation or LLC can't pay its debts, creditors can usually only take over the company's assets and not the owners' personal assets. However, the business owner may also be held responsible for corporate or LLC debts in certain situations. Below, we look at how this can happen. The corporate veil is usually pierced if the creditor can prove that the corporation or LLC was a shell created solely to provide liability protection to its owners or that the company was practically inseparable or an alter ego of its owners.
Members of member-managed companies can vote on all matters affecting the LLC's business and matters. The operating agreement can also set out the circumstances under which a member can retire, resign, or be expelled from the LLC. As with a corporation, the owners of the LLC, also referred to as members, are generally not personally responsible for the company's debts and obligations. Your entity will protect your personal assets from tort, as long as you are not the person who committed the criminal act (or in a couple of other situations, see below). In addition, if an employee or owner commits a wrongful act, they could be personally responsible for their actions, but a co-owner of an LLC who was not involved in the crime would not be.
However, a creditor can also attempt to seize your personal assets by removing the limited liability protection provided by the corporation or LLC. The rights of dissidents, also known as the right to an appraisal, are the right to sell a membership interest to the LLC for the fair value of the share if the LLC enters into a transaction that would alter the nature of the member's investment, without the member's consent. If your company is sued for a major incident or accident, the plaintiff's attorneys will desperately try to find someone responsible for paying, preferably a person or entity with “a lot of money.” One caveat is that banks often require you to personally guarantee your loans (and to use business assets as collateral). If the owner made fraudulent statements or omissions when applying for a business loan, he may be held personally responsible for the damage caused to the creditor and risk losing his personal assets.
Members also have the right to participate in the distributions of the LLC's assets during its existence and when it dissolves and liquidates. Similarly, if you personally secure an obligation from the corporation or LLC, the creditor can take over your personal assets if the company doesn't repay the loan. The owners of a corporation or LLC can also be held personally liable if they are found to have committed fraud. Such an action would also constitute illegal and fraudulent activity, in addition to treating the LLC as an extension of oneself.
