most common question asked by new Texas business owners is
"When I create a Texas LLC, How Exactly Does
it Protect Me?"
After creating an LLC in Texas, the LLC is its own legal person separate and apart from its owners.
So, when you create a
for your business, the Texas limited
liability company itself is the
business and the entity running the business. You are not the business. You are the person
who owns the business.
The Texas limited liability company, once created, is the actual person who customers do business with. The
is the person who enter into all of the business contracts. When
the business is ready to hire employees, it is the Texas LLC who is the
So, the magic of creating an LLC in Texas, is that there is a layer
of protection between you and the activities of the Texas limited
liability company. You are simply the owner of the Texas LLC. When a customer, supplier, employee or any third party has a problem
with your Texas LLC business, that person must deal with the Texas
limited liability company. If that
person ever decides to sue the business, it must sue the Texas LLC.
The Texas LLC laws generally
state that when you create an LLC in Texas, a member (owner) of that
Texas limited liability company is not liable for the
obligations of the LLC solely be reason of being a member.
This is the same protection afforded by corporations. The benefit of
an LLC over a corporation is that when you create an LLC in Texas as
opposed to a corporation, the Texas LLC allows business owners a lot
more flexibility and simplicity than corporations.
If you chose not to create an LLC in Texas and ran your business as a sole
proprietorship, then you would be personally liable for ALL business
If you are personally liable, then you are subjecting everything you
own to unnecessary risk. If someone were to sue you and win in
court, the court can take your assets (home, savings, cars, jewelry,
investments) to pay off the judgment against you.
the other hand, if you create an LLC in Texas and run your business properly though
the Texas LLC,
lawsuit judgments would be against the Texas limited liability
company and not you personally.
So, your personal assets will be protected from being taken to
satisfy those judgments.
Exceptions to Limited Liability Protection even after creating an
LLC in Texas
most commentary on Texas LLC liability would end here, but you
should know that there are exceptions. This
next section is important and relevant.
There are several exceptions to the rule that after creating an LLC
in Texas, members (owners) are
not personally liable for LLC debts and obligations. Here is a
summary of the major ones.
First Exception, any person is
always liable for their own personal conduct when that conduct
injures someone or something. So, if you were in a company car going
to a business meeting for your Texas limited liability company and you were negligent and hit
another driver, you would still be personally liable for the
injuries and damages. LLCs do not shield you from being liable for
your own personal negligence.
Second Exception, when you first
create a LLC in Texas, many third parties may not be willing to do
business with just your Texas LLC. Your Texas limited liability
company is brand new and probably does
not have a lot of assets.
So, some people might ask the owners to "personally guarantee"
the obligations of the LLC. The most common situations are borrowing
money and getting office space.
Even after creating an LLC in Texas, if you personally agree to be liable for an LLC obligation by
signing an agreement stating so, you will be liable for those
Third Exception Another big
exception is known as the piercing the LLC veil problem. Many people
create a LLC in Texas for their business and then operate their business as if
the LLC did not exist. It is very important that you run the
business through the Texas limited liability company and maintain certain LLC documentation.
After all, if the owners of the Texas LLC, after creating an LLC in
Texas, ignore the LLC and run the
business as a sole proprietorship, then why should third parties
suing the Texas limited liability company have to honor the LLC and not be able to sue the owners?
Our eBook, The Six Step LLC Formula for Limited Liability Protection provides the necessary steps
and requirements for you to ensure you use your Texas limited
liability company in the right way
to avoid the piercing the LLC veil challenge. You receive this eBook as a FREE Bonus with the purchase of our
Texas LLC Formation Services.
Click here to learn more about our
Texas LLC Formation Services (100% Satisfaction Guarantee)