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July 2009 Archives

BusinessWeek cited FindLaw attorney editor Stephanie Rahlfs in its Smart Answers column this week on the topic of LLCs and collection of debt.

If the owners of an LLC close the business, can landlords or other creditors attempt to collect from the individuals who had originally formed the company?

In general, states Rahlfs in the column, a correctly formed Limited Liability Corporation (LLC) should protect the business owners from having to pay for the company's debts with personal assets or wages, unless other agreements or contracts (such as a signed personal guarantee) were created with the creditor that would nullify such protections. This means that a creditor who wished to collect on the debts of the LLC would be required to pursue collection on the assets of the corporation and not an individual's personal possessions. 

But there may be other limits and exceptions to these protections in the eyes of the courts, including the amount of co-mingling that occured between the owner's personal and business assets, according BusinessWeek writer Karen Klein. Klein recommends carefully reviewing the LLC and other signed creditor agreements with a legal professional to make sure that the former business owners are protected.

Related Links:

How to Form an LLC (FindLaw)
Checklist: Starting a Limited Liability Corporation (FindLaw)
Buy Cost-effective legal forms to create an LLC (FindLaw)