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Limited Liability Exists And Isn't Hard To Keep

We are often asked whether limited liability really works. These questions are prompted, no doubt, by the media-engendered fear that the country is lawsuit-happy and that no one is safe.

The bottom line is that corporations and limited liability companies will limit your liability, just as they have always done, provided you observe the rules which have always applied.

Specifically, you will need to organize your corporation or limited liability company properly, treat it like a separate entity (keep separate books, separate bank accounts, and so forth), and observe the formalities of (1) doing occasional minutes of meetings and (2) filing reports required by applicable state law. These matters are, if anything, easier to attend to now than in the past.

Please bear in mind that the question of limitation of liability, like almost every other question in the law, has gray areas. You will have personal liability if you personally guarantee a debt after incorporating, or seriously injure someone driving while intoxicated on company business. You will not have personal liability if a co-owner personally guarantees a debt, or if an employee seriously injures someone while unexpectedly driving intoxicated on company business.

Forming a corporation does not give you the privilege of acting irresponsibly, but it will fulfill its job of limiting your liability if you act responsibly and in good faith.

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