Liability Protection of an LLC/S-Corp?

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kjho...@gmail.com

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Mar 21, 2006, 7:40:12 AM3/21/06
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Hello,

I'm considering forming an LLC for its (potential) liability
protections over a sole proprietorship or partnership. I understand the
financial liability protection that it gives, but am wondering about
some other cases. Allow me to give a few examples:

* You publish a book that contains recommendations on some subject, but
it contains some incorrect information.
* You publish a website that is highly opinionated and someone takes
offense to the views or claims that it is grossly incorrect to the
point of harming the general public (negligence).
* You're in the business of advising clients in your area of expertise,
but accidentally provide incorrect information.

Yep, I realize these are all along the same lines, but I wanted to
cover the point adequately. So the question is: if someone sues your
company, what is your personal liability in these cases?

Thanks!

_KJH

Barry Gold

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Mar 22, 2006, 10:50:19 AM3/22/06
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This is for discussion purposes only, and is not legal advice. I'm
not a lawyer. If you want legal advice, hire a lawyer.

An LLC protects you from _contract_ liability. If you get in over
your head, and your business expenses exceed your business sales over
a period of time, you can dissolve the LLC and walk away from those
debts.

An LLC does *not* protect you from tort liability. You are *always*
responsible for the things you did that you shoudn't've and the things
you should've done that you didn't do. If you publish incorrect
recommendations, someone can sue you for any damages they incur by
following your recommendations(*). If you put up a website with
false defamatory statements about somebody else, they can sue you.
If you provide bad professional advice, your clients can and probably
will sue you.(+)

(*) Whether they can _win_ is another question. People regularly
publish books full of recommendations, with suitable disclaimers, and
almost never get sued over it. Most of the time, the person who lost
money following your advice has to prove that you _knew_ the advice
was bad.

(+) Actually, they would usually sue both the LLC and the person who
gave the bad advice/made the libelous statements. *If* they win,
they'll collect from whichever has assets to collect from.

An LLC doesn't protect you from your own negligence/malpractice/etc.
any more than it protects you from, e.g., screwing up while driving a
car and somebody gets hurt. If it's a "company car," then the company
and the driver are _both_ liable.
--
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to the republic which it established, one nation from many peoples, promising
liberty and justice for all.
Feel free to use the above variant pledge in your own postings.

Mark A

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Mar 22, 2006, 10:50:22 AM3/22/06
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<kjho...@gmail.com> wrote in message
news:8qsv12tqprd62faj8...@4ax.com...

A LLC can be a sole proprietorship if there are no employees. A partnership
can be a LLP. So even if the protections are not absolute, you should
organize as a LLC or LLP (if you have a partner).

So regardless of what answers you get, you should organize as a LLC or LLP.
The cost is usually $50 - $200 depending on the state and you can usually do
it online at the website of the Secretary of State of your state where the
business is located.


John A. Weeks III

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Mar 22, 2006, 10:50:25 AM3/22/06
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In article <8qsv12tqprd62faj8...@4ax.com>,
kjho...@gmail.com wrote:

> I'm considering forming an LLC for its (potential) liability
> protections over a sole proprietorship or partnership. I understand the
> financial liability protection that it gives, but am wondering about
> some other cases. Allow me to give a few examples:

Best talk with an attorney on the subject. In general, the
person who commits the act is still liable. The LLC or
corporation might avoid getting sued, but you will still
be liable personally if you give the advice or cause the
damage. About the best you can do is (1) make sure that
you have nothing to lose, and (2) have a lot of insurance.

-john-

--
======================================================================
John A. Weeks III 952-432-2708 jo...@johnweeks.com
Newave Communications http://www.johnweeks.com
======================================================================

Robert Bonomi

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Mar 22, 2006, 10:50:12 AM3/22/06
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"working" for a corporation does *NOT* mean that you have no personal
liability for _your_ actions. It simply means that the corporation may
_also_ be liable. Actions of the corporation, which you were _not_
involved in, do not cause you, personally, to incur liability.

Stan Brown

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Mar 22, 2006, 10:50:17 AM3/22/06
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Tue, 21 Mar 2006 07:40:12 -0500 from <kjho...@gmail.com>:

> if someone sues your
> company, what is your personal liability in these cases?

They _won't_ just sue the company; they'll sue you personally as
well.

--
If you e-mail me from a fake address, your fingers will drop off.

I am not a lawyer; this is not legal advice. When you read anything
legal on the net, always verify it on your own, in light of your
particular circumstances. You may also need to consult a lawyer.

Stan Brown, Oak Road Systems, Tompkins County, New York, USA
http://OakRoadSystems.com

Stuart A. Bronstein

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Mar 22, 2006, 10:50:14 AM3/22/06
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kjho...@gmail.com wrote:

> Yep, I realize these are all along the same lines, but I wanted
> to cover the point adequately. So the question is: if someone
> sues your company, what is your personal liability in these
> cases?

A corporation or an LLC protects you from the liability of others.
If you personally commit a tort, you are personally responsible
whether or not you have a corporation or LLC.

Stu

Daniel R. Reitman

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Mar 23, 2006, 1:03:10 PM3/23/06
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On Wed, 22 Mar 2006 10:50:19 -0500, bg...@nyx.net (Barry Gold) wrote:

>. . . .

>An LLC does *not* protect you from tort liability. You are *always*
>responsible for the things you did that you shoudn't've and the things

>you should've done that you didn't do. . . .

>. . . .

Let's clarify that a bit.

LLCs and corporations are liable only to the extent of their own
assets, so long as they are not used to evade obligations. That said,
a tort by a principal probably would result in claims against both the
LLC/corporation and the principal.

The most effective way to protect against tort liability is insurance.

Daniel Reitman

prab...@shamrocksgf.com

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Mar 24, 2006, 11:08:21 AM3/24/06
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Exactly. As I understand it, if you form a corp. it shields you from
anything your employees or other stockholders (i.e. those persons who would
be partners if this was a partnership instead of a corp.) might do but
doesn't protect you against your own actions (so if this was a one-man shop,
an LLC would be useless in this regard.)

--
Mike

-------------------------------
"Our enemies are innovative and resourceful, and so are we. They never stop
thinking about new ways to harm our country and our people, and neither do
we," George W. "Shrub" Bush Aug 5, 2004

Stuart A. Bronstein

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Mar 26, 2006, 10:55:35 PM3/26/06
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prab...@shamrocksgf.com wrote:

> Exactly. As I understand it, if you form a corp. it shields you
> from anything your employees or other stockholders (i.e. those
> persons who would be partners if this was a partnership instead
> of a corp.) might do but doesn't protect you against your own
> actions (so if this was a one-man shop, an LLC would be useless
> in this regard.)

It protects you against vicarious liability for the torts of others.
But for contracts that the corporation or LLC enters into, even if
you sign as an officer of the company, you don't have personal
liability unless you sign a personal guarantee.

Stu

ge...@alliancetax.com

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Mar 26, 2006, 10:55:39 PM3/26/06
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SNIPPED

> > "working" for a corporation does *NOT* mean that you have no personal
> > liability for _your_ actions. It simply means that the corporation may
> > _also_ be liable. Actions of the corporation, which you were _not_
> > involved in, do not cause you, personally, to incur liability.
>
> Exactly. As I understand it, if you form a corp. it shields you from
> anything your employees or other stockholders (i.e. those persons who would
> be partners if this was a partnership instead of a corp.) might do but
> doesn't protect you against your own actions (so if this was a one-man shop,
> an LLC would be useless in this regard.)
>
> --
> Mike
>
> -------------------------------

But only to the extent of gross negligence or a personal wrong. The
LLC or S Corporation will still afford liability protection against
personal assets from a business suit. For example, if a single member
LLC operates a business and the business fails and there is no gross
negligence on the part of the part of the owner - the business simply
failed - the LLC should provide protection of personal liability from
business creditors.

On the other hand, should the business owner become so enraged with a
client that he can't help but "knock some sense into him" he will be
personally liable for the tort.

Right?
Gene E. Utterback, EA, RFC

Stuart A. Bronstein

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Mar 27, 2006, 10:00:00 PM3/27/06
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ge...@alliancetax.com wrote:

> But only to the extent of gross negligence or a personal wrong.
> The LLC or S Corporation will still afford liability protection
> against personal assets from a business suit. For example, if a
> single member LLC operates a business and the business fails and
> there is no gross negligence on the part of the part of the
> owner - the business simply failed - the LLC should provide
> protection of personal liability from business creditors.=
>
> Right?

Not quite. A corporation or LLC protects you from contract debts of
the business that you did not personally guarantee. It also protects
you from vicarious liability for the torts of others, such as
employees. But you are always liable for your own torts, whether
caused by gross or ordinary negligence.

Stu

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