Does having an LLC protect your personal assets from a lawsuit?
Question Details: I am being sued by a former employee in a labor lawsuit, he is claiming that he was not being paid overtime. I do not have documents to prove that he is wrong. I am wondering in the worst case scenario are my personal assets vulnerable if I were to claim bankruptcy.
sAn LLC offers considerable protection from a wage and hour, including overtime, lawsuit: as a general matter, the LLC's members (owners) and managers/officers are not personally liable for the LLCs debts and obligations, including for unpaid wages or overtime.
The protection is not foolproof or absolute, however. Sometimes, a creditor, including a "judgment creditor" (someone who sues the business and wins), can "pierce the corporate veil" and penetrate the liability protection afforded by LLCs or corporations and get at the owner's personal assets. To do so means proving one or both of the following:
1) You so co-mingled LLC and personal assets (e.g. used LLC money to pay for personal expenses not connected to the LLC) that the LLC effectively did not have its own separate existence but was an extension of you.
2) You deliberately took steps to use the LLC structure to defraud creditors, such as by transferring money and assets out of the LLC which could have used to pay creditors, leaving creditors with not recourse against the LLC.
If a creditor could show 1) and/or 2) above, the creditor could hold you personally liable for the LLC's debts.