Understanding the limited liability protection of an LLC The owners' personal assets, such as cars, houses and bank accounts, are safe.
The owner of an LLC only risks the amount of money he or she has invested in the business. The owners remain liable for the debts they have personally guaranteed.
The main protection of the LLC relates to any liability or debt incurred by the business.
In most situations, you are safe from having your personal assets seized to pay any debts your company incurs that you cannot pay, unless you put up a personal guarantee when you took out the loan.
Like shareholders of a corporation, all owners of an LLC are protected from personal liability for the debts and claims of the company. This means that if the company itself cannot pay a creditor, such as a supplier, lender or landlord, the creditor cannot legally go after an LLC member's house, car or other personal possessions.
Since only the assets of the LLC are used to pay the debts of the company, the owners of the LLC can only lose the money they have invested in the LLC. This feature is often referred to as limited liability.
The main reason people form an LLC is to avoid personal liability for the debts of a business they own or are involved in.
By forming an LLC, only the LLC is liable for the debts and obligations incurred by the business, not the owners or managers.
However, the limited liability provided by an LLC is not perfect and, in some cases, depends on the state in which your LLC is located.