There’s the rule, and then there are the exceptions…
Most businesspeople know that conducting business through a limited liability company (LLC) or corporation shields their personal assets. That is, as a general rule, LLC members and corporation shareholders are not personally responsible for their company’s debts and obligations. Well, that’s the rule. But, every rule has exceptions. In the case of the liability shield rule, there are many exceptions. For example, owners of small, privately held businesses can face personal liability if the company’s creditors are not “on notice” of the fact that they are doing business with a limited liability entity.
An easy mistake…
The absence of “notice” can easily arise if a business uses a trade name or simply omits the corporate designator (for example, “L.L.C.” or “Inc.”) from the end of its company name. Some courts have ruled that, if no corporate designator appears at the end of a business name, it is not unreasonable for a creditor to assume it is extending credit to a sole proprietorship or a general partnership—-neither of which afford a liability shield—and creditors may hold the owners personally liable for the company’s debts and obligations.
To avoid potential personal liability stemming from the lack of notice, it is prudent to use the full, legal name of the company—including its corporate designator—whenever, wherever, and however you do business. For example, the full, legal company name (including its corporate designator) should appear on the company’s website, letterhead, checks, invoices, business cards and promotional materials—even if the company uses a trade name that is registered as a trademark or registered for some other purpose.
Please feel free to contact me if you would like more information about maintaining a strong liability shield.
Barry F. Gartenberg, L.L.C.
Attorney at Law
505 Morris Avenue, Suite 102
Springfield, New Jersey 07081
DISCLAIMER: This BLOG post is provided solely for the general interest of the reader. It is not legal advice or opinion. Legal advice and opinion are provided by the firm only upon engagement with respect to specific factual situations.