Does Forming an LLC Shield You From Personal Injury Lawsuits?

Many Texas entrepreneurs use LLC formation as a protective measure against the liabilities incurred by the business. A limited liability company, or LLC, is a business structure that legally separates the entity from its owners. 

That means the owners of the LLC are not personally liable for the acts of the business and its other members. Conversely, without this separation, disgruntled clients and creditors can easily sue you and seize your personal assets. 

Texas is one of the few states that doesn’t impose a personal or corporate income tax, making it a business-friendly location for LLCs. Forming an LLC with a TX registered agent offers substantial protection and advantages. For instance, it ensures the timely receipt of legal documents. 

While many business owners in Texas find setting up an LLC an excellent choice, there are certain situations where they may still bear personal liability. This article walks you through the extent to which an LLC shields its members from liabilities related to personal injury. 

Personal Liability Protection You Can Get With an LLC

Assessing the potential liability risks of your business and the protection an LLC can offer is crucial before establishing this business structure. Rules concerning LLCs vary by state. 

Considering that, the limited liability you get with an LLC may depend on what state it’s located in. In every state, you don’t bear personal liability for the LLC’s obligations unless stated otherwise in the company agreement. 

Under Section 101.114 of the Texas Business Organization Code, you’re not personally liable for the LLC’s debts, obligations, or liabilities. 

What does that mean? Your LLC’s creditors can pursue the company’s bank accounts and other property. However, they can’t access and seize your personal property, such as your home, car, and bank accounts. 

It’s worth noting that many creditors will require a personal guarantee. A lender puts a provision in a business loan agreement, compelling owners to be personally liable for their company’s obligations. 

In that case, you can be held responsible if the LLC’s assets fall short. Texas law protects members of an LLC from being held liable for the company’s obligations. However, it doesn’t extend protection to the member’s individual obligations. 

Likewise, the LLC will shield your personal assets from tort liability. But that only applies if you didn’t commit the tortious act. Even if the actions are carried out in the service of the LLC, you can be found personally liable for your negligence, malpractice, or other wrongful acts. 

Typically, tort liability stems from one’s wrongful actions toward another individual. Examples of cases where an LLC owner may be held personally liable for personal injury include the following: 

  • Cause personal and direct harm to another person while conducting business due to negligence
  • Intentionally engaging in fraudulent, illegal, or reckless acts during business operations that inflict harm on the company or another individual 

How To Protect Yourself From Personal Injury Lawsuits as an LLC Owner

Even if you plan to have direct involvement with LLC activities that carry apparent risks of injury to others, you may still face residual personal liability, especially if you’re performing different roles within the company. 

An LLC won’t protect you from personal liability if someone sues you for negligence in property maintenance or for wrecking a company vehicle. The financial repercussions of a personal injury lawsuit can be devastating. 

The good news is that you can protect yourself from such risks by investing in adequate liability insurance coverage. Liability insurance financially protects you and your LLC against lawsuits involving bodily injury, property damage, and reputational harm resulting from daily operations. 

When the LLC has multiple owners, it’s also wise to ensure that your company’s operating agreement clearly outlines when and how it will protect owners from personal liability arising during business operations. 

The Bottom Line

Doing business as an LLC provides numerous benefits. Since each company has a unique risk profile, consulting with an attorney when setting up an LLC is essential. They can help protect your LLC against future lawsuits involving personal injury and other claims.