Limited Liability Companies (LLCs) are often touted as the recommended form of incorporation for small- and medium-sized business owners and entrepreneurs. One of the leading reasons for this is right in their name: Limited Liability.
It sounds nice. You can keep moving forward even if your business fails without necessarily having to pay off business debts with personal expenses. This is a good ideal, and the ultimate goal of seeking limited liability, but as life has taught so many of us, it doesn’t always work out that way.
In 2011, a 10%-member of an LLC in Oregon was assessed for liability in a case by the Oregon Department of Revenue. The issue was a matter of back taxes and the company’s inability or refusal to pay what was owed. There was no precedent yet set for this in Oregon’s history of legal proceedings, so the court had to get a little creative with the matter.
Finding the defendant’s status to be similar to that of a corporate officer, the court cleared him of all charges due to the fact that his role in the company did not grant him the right to sign checks or make financial decisions independently of the company’s 90% owner-manager. The court found him to be excused of any liability due to his lack of authority in the areas relevant to the specifics of the case.
Not every LLC or member will be able to escape so unscathed. Simply put, there are times when you have to pay the piper, but choosing to operate under an LLC can expand the number of options you have when it comes to being excused from personal financial liability as far as paying back business debts are concerned.