101 South Hanley, Suite 1280 Clayton, MO 63105
314.283.8930; henry@elsterlaw.com

When you may be Personally Liable for LLC or Corporate Debt

One of the main benefits to forming a limited liability company or corporation is that the owners of the company are usually not personally responsible for the debts of the busness. There are exceptions to this general rule.

First and foremost, if there is a personal guarantee for a business debt, then the personal guarantor will obviously be liable in the event of default. Many lenders will require personal guarantees of some or all of the owners before giving a company a loan to make the loan safer from the lender’s perspective (particularly for smaller companies).

Separately, a court may disregard a business if it is used as subterfuge to defraud a creditor. Edward D. Gevers Heating & Air Conditioning Co. v. R. Webbe Corp., 885 S.W.2d 771, 773 (Mo. Ct. App. 1994). The existence of a corporate entity may also be disregarded when it is operated while undercapitalized or when its assets are stripped to avoid the demands of creditors. Evidence of the use of a corporate identity to defraud creditors includes the transfer by the debtor corporation of its property to a second corporation when both are controlled by the same person(s). Id. at 773.

This is a fact intensive inquiry and depends on the particular circumstances of a case and company.