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Exceptions to Liability Protection in Corporations and LLPs

One of the main benefits of forming a Limited Liability Partnership (LLP) or a corporation is the liability shield that such organizations provide for their owners, including financial protection. Because of this, the businesses’ creditors cannot pursue compensation from the individual owners of the businesses should the companies have insufficient assets to pay their debts. There are a few exceptions to these protections, however, and in certain circumstances it is possible for the liability shield to fail.

If your company is facing considerable debts and you are concerned about the status of your personal liability, the guidance and representation of a skilled Houston bankruptcy attorney may be necessary to protect your rights and interests. To learn more about your rights and legal options, contact the Russell Van Beustring P.C., today at 713-973-6650.

Exposure to Liability

There are two ways in which your own actions could expose you to personal financial liability for your business’s debts despite the protections offered by a corporation or LLP:

  • Personally cosigning on business loans or personally guaranteeing business obligations
  • Putting up you own property as collateral when your company has limited assets

In some situations, creditors may attempt to pierce the corporate veil in order to obtain compensation for their losses. In normal situations, the court will refuse such requests, but the following circumstances may cause a court to allow personal liability for someone’s business:

  • Failure to engage in normal corporate formalities such as annual shareholder meetings
  • Commingling of personal funds and company funds
  • Insufficient capitalization upon formation of the company
  • Individual owners exerting excessive control over the company
  • One or more of the owners engaged in fraudulent behavior

In such situations it may become necessary to consider aggressive measures for debt management in order to prevent serious personal financial damage.

Contact Us

At the Russell Van Beustring P.C., our legal team is dedicated to protecting the rights and interests of our clients in matters regarding debt management and bankruptcy. For a free consultation to discuss the details of your situation with an experienced Houston bankruptcy lawyer, contact our offices today at 713-973-6650.


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