How Exactly Does an LLC Protect its Owners when they Establish an LLC in Virginia?

 

The most common question asked by Virginia business owners who are establishing an LLC in Virginia is "How Exactly Does an LLC Protect Me?" 

The Virginia limited liability company is its own legal person separate and apart from the owners who have decide to establish an LLC in Virginia. So, when you establish an LLC in Virginia for your business, the Virginia limited liability company itself is the business.  You are not the business.  You are the person who owns the business.

The Virginia limited liability company is the actual legal person who customers do business with. The Virginia limited liability company is the person who enter into all of the business contracts. When the business is ready to hire employees, it is the Virginia limited liability company who is the employer.

Just because it is you have established an LLC in Virginia, you are not the business. You are simply the owner of the Virginia limited liability company. So, when a customer, supplier, employee or any third party has a problem with your business, that person must deal with the Virginia limited liability company. If that person ever decides to sue the business, it must sue the LLC.

The Virginia LLC law generally states that a member (owner) of an LLC is not liable for the obligations of a Virginia limited liability company solely be reason of being a member.

If you run your business as a sole proprietorship, then you are personally liable for all business obligations.

If you are personally liable, then you are subjecting everything you own to unnecessary risk.  If someone were to sue you and win in court, the court can take your assets (home, savings, cars, jewelry, investments) to pay off the judgment against you.
 

On the other hand, if you establish an LLC in Virginia and run your business properly though a Virginia limited liability company, all lawsuit judgments against the Virginia limited liability company would be against the LLC not your personally.  So, your personal assets will be protected from being taken to satisfy those judgments.

 

There are Exceptions to Limited Liability Protection of a Virginia Limited Liability Company

Now, most commentary on LLC liability would end here, but there are several exceptions to the rule that members (owners) are not personally liable for LLC debts and obligations.  Here is a summary of the major ones.

First Exception, any person is always liable for their own personal conduct when that conduct injures someone or something. So, even if you did establish an LLC in Virginia, you could be personally liable for negligent acts performed while your were working for the Virginia limited liability company.  Suppose you were in a company car going to a business meeting for your Virginia limited liability company and you were negligent and hit another driver.  In this case, you would still be personally liable for the injuries and damages. A Virginia limited liability company does not shield you from being liable for your own personal negligence.

Second Exception, when you first establish an LLC in Virginia, many third parties are not willing to do business with just your newly formed Virginia limited liability company. Your LLC is brand new and probably does not have a lot of assets.

So, some people might ask the owners of a newly established Virginia limited liability company to "personally guarantee" the obligations of the LLC. The most common situations are borrowing money from a bank and getting office space.

So, if you personally agree to be liable for an obligation of a Virginia limited liability company by signing an agreement stating so, you will be liable for those specific obligations.

Third Exception- Another big exception is known as the piercing the LLC veil problem. Many people establish an LLC in Virginia for their business and then operate their business as if the Virginia limited liability company did not exist. It is very important that you run the business through the LLC and maintain certain LLC documentation.

After all, if the owners of the Virginia limited liability company ignore the LLC and run the business as a sole proprietorship, then why should third parties suing the LLC be able to ignore the Virginia limited liability company and thus be able to sue the owners personally?

Our eBook, The Six Step LLC Formula for Limited Liability Protection, that comes with our Virginia LLC formation services, provides the necessary steps and requirements for you to ensure you use your LLC in the right way to avoid the piercing the LLC veil challenge.
 

Because of this great benefit, it is universally agreed by lawyers and accountants that businesses should always establish an LLC in Virginia and operate using a limited liability entity.  The costs are so low given the tremendous benefits!
 

Many think that lawsuits will not happen to them.  But the statistics prove otherwise.  Small business owners are prime targets for lawsuits including frivolous lawsuits!  The predatory litigation attorneys are out there. 

Click here to learn more about our LLC Formation Services (100% Satisfaction Guarantee)

 

Ask A Question or Contact Virginia Business Formation