LLC vs. personal liability on commercial lease: Can they take MY $?

Question

If I default on a commercial lease that is between my landlord and my LLC only, if I default on the lease, can the landlord come after my assets or only the corporations? That is, worst case scenario this happens. Can I simply fold my corporation and walk away without fear of losing my home, my car, my child's college fund?

Answer 1

Please read your lease and contact your lawyer for advice.  Default on a lease will likely result in eviction and forfeiture of any and all security deposits.  ALso, if you are evicted, you may be locked out by the Sheriff and any contents may become property of the landlord....as laid out in your lease.  All terms for default and/or early termination should be laid out in clear and concise terms.  It is unlikely, due to legal costs, that any landlord would pursue any further damage above and beyond security deposits.....but not out of the question.

As for your liability, LLC personal liability is limited to your monetary investment into the LLC.....read below

Limited liability

    Unlike in a partnership or sole proprietorship, shareholders of a modern business corporation have "limited" liability for the corporation's debts and obligations. As a result their potential losses cannot exceed the amount which they contributed to the corporation as dues or paid for shares. Limited liability regulations enable corporations to socialize their costs for the primary benefit of shareholders. The economic rationale for this lies in the fact that it allows anonymous trading in the shares of the corporation by virtue of eliminating the corporation's creditors as a stakeholder in such a transaction. Without limited liability, a creditor would not likely allow any share to be sold to a buyer of at least equivalent creditworthiness as the seller. Limited liability further allows corporations to raise tremendously more funds for enterprises by combining funds from the owners of stock. Limited liability reduces the amount that a shareholder can lose in a company. This in turn greatly reduces the risk for potential shareholders and increases both the number of willing shareholders and the amount they are likely to invest.

Answer 2

If you did everything correctly then only the assets of the LLC would be in Jeopardy.  However, companies are loathe to rent to LLC's with no credit history, so I'd be surprised if you are not also personally responsible for the lease - read it carefully and find out for sure.

Also, if you co-mingled your personal funds with the LLC or did some other things that are no-no's then the court will probably rule that you and the LLC are inseperable and therefore that you are responsible for the debts of the LLC, so are you sure you didn't do any of those things.

However, if the lease is truly just with the LLC and not also with you personally, and you did everything correctly then only the LLC is responsible (thats the whole reason for creating a LLC - so that only the assets of the LLC are at risk for lawsuits over anything it does or owns).

Answer 3

Well the idea behind the LLC is that they can't come after your personal assets, but if you were treating your LLC as if it were your own money (ie using it to buy personal stuff or not keeping up w/ the paperwork), then you could easily become liable.  This is definitely a situation where you'll want a lawyer.