The best magazine
Question: Does an S Corporation Have Lower Liability than an LLC?
Business owners are concerned that the type of business they set up will protect them from liability in two areas:
- From having to pay business debts from personal funds and
- From being personally liable for business lawsuits.
Are S corporations "safer?"
Answer:
This question is an issue of state law. In theory at least, the owners of either an S corporation or an LLC should be shielded from personal liability for the debts and acts of the entity. However, an S corporation shareholder or LLC member may be liable for his or her own acts, even if acting in the course of the entity’s business.
Corporations have been with us for centuries and the law dealing with when shareholders are and are not personally liable is relatively well developed. LLCs are much newer entities and the law dealing with member liability is much less developed. Some lawyers have questioned whether the principles applied in the corporate context would be similarly applied in the case of an LLC. One thing is certain; in cases where the entity lacks sufficient assets to satisfy a judgment, plaintiffs’ lawyers will look for ways to “pierce the corporate (or LLC) veil” and impose liability directly on the owners.
Robert Warwick has practiced tax and corporate law for more than 35 years, both in private practice and as in-house counsel for two major corporations.
He is presently counsel to ThompsonMcMullan, a Richmond, Virginia law firm. He holds JD and MBA degrees from Cornell University and a Bachelor of Electrical Engineering from Rensselaer Polytechnic Institute. Mr. Warwick is actively practices law in Virginia and does not claim any knowledge as to the particular laws of any other jurisdiction.
Disclaimer: The foregoing does not constitute legal advice and does not create an attorney-client relationship.
Back to S Corps vs. LLCs
Source: ...