There are several good reasons for entrepreneurs to set up their new business as a limited liability company (LLC) or corporation — chief among them being the liability protection for personal assets that each structure affords those who own shares in the business.

However, there are situations where an LLC or a corporation will NOT protect personal assets, including if a business owner:

Personally guarantees a business loan. It is not unusual for a lender to ask owners of a new venture to sign a personal loan guarantee for an unproven business. If you decide to do that, you need to be aware that your LLC or corporation provides you with no liability protection for that particular debt. In addition, if you use your personal credit card for a business debt, you have no liability protection for that debt either.

Signs a contract using his or her own name. This is a very common but potentially costly error since signing an agreement with your own name instead of the name of the business means you have agreed to be personally responsible for meeting the terms of the agreement. Always sign business agreements with the name of the business.

Breaks the law. Your LLC or corporation will not protect you if you break the law. This also applies if you make a misrepresentation on a credit or loan application.

Incurs a negligence or malpractice claim. Attorneys, doctors and other professionals who are at risk for personal liability lawsuits on the grounds of negligence or malpractice should have professional liability insurance to cover these claims.

Doesn’t keep the LLC or corporation in compliance. In order to keep an LLC or corporation in compliance with state law, there are certain formalities that must be followed. Failing to do so could cost a business owner his or her personal liability protection.

Johnson Legal PC has extensive experience in providing legal guidance during the start-up phase of small organizations, as well as during the more mature periods of organizational growth that larger business and corporations face. Contact us to learn more about how a great corporate attorney can help your business thrive.