Risk of Personal Liability for Owners of Corporations and LLEs

Although corporations and limited liability entities (LLEs) are valuable tools for shielding their owners from many types of personal liability, it is important for owners to be mindful that corporations and LLEs do not extinguish all risk of personal liability.

Despite the general shield against personal liability provided by corporations and LLEs, their owners can still be held personally liable:

· for their own personal obligations (such as personally guarantying the performance of corporate or LLE obligations);

· for their own tortious or unlawful acts relating to the corporation or LLE’s business;

· for failing to withhold or pay federal or state income tax and other employment-related taxes (see this IRS publication about employment taxes and this webpage about Maryland income tax withholding);

· for failing to collect and remit state sales and use taxes (see this webpage about the Maryland sales and use tax);

· under certain laws that expressly impose liability on business owners (such as the obligation to use property received from the entity upon its dissolution for the purpose of paying the entity’s outstanding debts); and

· when using a corporation or LLE as a mechanism for perpetrating a fraud.

For more information, please contact Jeremy Garner at garner@bowie-jensen.com.