I am frequently asked about forming a corporation or limited liability company (“LLC”) for a sole proprietor, consultant or professional concerned with exposure to liability relating to his or her business or profession. Shareholders of a corporation or members of an LLC are in general shielded from most liabilities of the corporation or the LLC. There are exceptions, but absent fraud or other grounds for “piercing the corporate veil,” that is the general rule.
However, the corporation or limited liability company will not protect its shareholder or member owner from personal liability for his or her own actions. For example, if a sole proprietor is at fault in an auto accident relating to his business, he has personal liability for the damage caused by the accident. If a shareholder in a corporation is at fault in an auto accident relating to the corporation’s business, he still has personal liability for the damage caused by the accident. Likewise, a corporation will not protect its shareholder consultant or professional from personal liability for errors or omissions he or she commits in the practice.
While there may be other good business or tax reasons for operating under the umbrella of a corporation or LLC, protecting oneself from liability for one’s own actions may not be one of them.
If you have any questions, please contact L. Michael Telleen at firstname.lastname@example.org or at (650) 342-9600.