Liability Protection

[pmedders]

I know by forming a corporation or LLC, the business owner receives liability protection; but could someone clarify a few points. One questions I have is if, for example, an S-Corp goes to bank to ask for loan, but bank won't lend money without owner also guaranteeing loan; then wouldn't that basically make the liability protection void meaning bank could go after owner's personal assets?? Also, I heard an example at an IRS seminar stating that if employee of company has accident then owner would not be held liable if company sued; but if owner was at fault of accident, then again, owner could be personally sued along with company. Are these examples correct? Thus, if you are a sole-proprietor with no employees and something happens within your LLC, could you also be sued along with company??

[Gretel]

Liability

Yes, the bank are not stupid and want to be left out in the rain. So they make sure they get their money, secured by collateral and everything else the owner of the business has. Doesn't matter which form of business you have.

Then, next, tort is never covered under the limited liability. If you, as a owner are at fault you are personally liable.

Too many people think just forming a LLC or Corporation makes them home free. They don't even follow simple rules, like keeping minutes, so in fact they don't have any protection at all.

[taxmandan]

Liability protections

I know by forming a corporation or LLC, the business owner receives liability protection; but could someone clarify a few points. One questions I have is if, for example, an S-Corp goes to bank to ask for loan, but bank won't lend money without owner also guaranteeing loan; then wouldn't that basically make the liability protection void meaning bank could go after owner's personal assets??

ANSWER: Yes.

Also, I heard an example at an IRS seminar stating that if employee of company has accident then owner would not be held liable if company sued; but if owner was at fault of accident, then again, owner could be personally sued along with company. Are these examples correct?

ANSWER: Yes.

Thus, if you are a sole-proprietor with no employees and something happens within your LLC, could you also be sued along with company??

ANSWER: Yes.

The above responses are not to be construed as legal advice not should they be relied upon in making business or personal decisions regarding liability for business activity or personal behavior. The information was provided based on my own conversations with legal counsel and may or may not be applicable to your situation. The amount of misunderstanding of liability issues in the business world is massive. But when they rely on the word of the other contractors standing at the Home Depot contractor's desk for legal and tax advice what would you expect?

[John of PA]

Liability Protection

And remember, none of these legal entities protects one from malpractice lawsuits.

[Black Bart]

Hey, Bird -- About my post: add "what dan says" to it.

The above responses are not to be construed as legal advice not should they be relied upon in making business or personal decisions regarding liability for business activity or personal behavior. The information was provided based on my own conversations with legal counsel and may or may not be applicable to your situation.

Listen, when I told you to make and dee-duct a 1099 for that ole gal's hubby, I was completely unaware that we were supposed to post a dis-claimer like dan's after all our claimers (I think, if sued, I can easily plead "ignorance"). Well, anyway, you can see what kind of a bind that would put a "big-mouthed, 39 kitchen-table tax return-doer" in. I've got a lot to answer for if they get serious. Just last week at our local dive, the Stagger Inn, a drunk threw somebody out a closed window and the next day in court they asked him what his name was. Still drunk, he said "Some Dude." Judge threw the book at him for hundreds of previously unsolved crimes.

Anyhow, I herewith retract all statements of opinion that I've made from the dawn of time until the twelfth of never.

[Donanita]

Tax Preparer Sued

Went to a NATP workshop this week-end and the instructor told us of a situation where a client who was 54 yrs old went to file for disablility ss and found out there was not a lot there to file on.Client had Sch C filed over the yrs and due to Sec 179 and small profits very little ss paid in.Client is now filing a lawsuit on the tax preparer due to not being informed that with small profits they were in fact not increasing their ss.I will now add a clause to my engagement letters for my client that have ss paid in on their tax return of the problems they can have.
I make all my clients in this situation aware that if they wipe out their income they are also wiping out their ss.

[S T]

Eradicating SS net income on Sched C

Yes that has always been a concern of mine for schedule C taxpayers.

I often offer certain taxpayers (closer to the qualifying retirement years) the choice whether to reduce by Sect 179, the special bonus depreciation and other legitimate items we might take as a deduction. For some due to their age bracket it is not a material decision, just those that might be in the 5 years or so prior to their retirement.

Good point, might need to be an additional statement just for those in the position of reducing their SE tax and credit.

Sandy

[Black Bart]

Gabriele's right about the banks.

Yes, the bank are not stupid and want to be left out in the rain. So they make sure they get their money, secured by collateral and everything else the owner of the business has. Doesn't matter which form of business you have.

Then, next, tort is never covered under the limited liability. If you, as a owner are at fault you are personally liable.

I used to work for some people who had half a dozen large corporations. Whenever those corps borrowed money from the banks, every last one of the corporate officers had to sign as a personal guarantor for the notes.

Know some tarts, but no torts. Sorry.

[Black Bart]

Don & ST

client 54
file for disablility ss
very little ss paid in
Client filing lawsuit
not being informed
small profits
not increasing ss

I make all my clients in this situation aware that if they wipe out their income they are also wiping out their ss.

Ladies, I think the ss disability case is a real danger of lawsuits nowadays. Long ago I had a client with a problem that was something, but not exactly, like yours (back before anybody sued everybody).

Clients ran a bar. It was operated by both hubby and wife--as partners, I guess you (and surely Armando) would say--but all the income was reported on a "C" for hubby (that was the way it was expected to be done at the time--wives' ssn's were not even required to be listed on tax returns and only first names for kids). Neither of them (or me) ever even considered a partnership at that time. Husbands were expected to "take care of business." Just as a matter of principle, he would not have let me put her name on any of his "business papers" even if I had asked him about it; never mind the extra cost.
Wife, not husband, became disabled. Went to file for ss disability; nothing there. Much upset, but not at me. Lawsuits just weren't "done" at the time and they just figured those were the breaks. Now, they'd probably get a lawyer.

About "wiping out their ss," I had the same problem with my jailed client, "Some Dude," whom I mentioned earlier. I asked him what brought all that ruckus on. He replied, "I lost all my money playin' pool and that SOB hit me up for some money he'd loaned me. I said I didn't have it--he called me a deadbeat. Told him to take that back or I'd wipe up the floor with his ss. He wouldn't. I did."

[taxmandan]

SS benefits

If a client is self-employed and always minimizes their income I ask if they received the SSA statement this year showing how much they'll get in SS payments. Most all of them have said yes and they don't understand why their benes are so small. Gives a great lead-in to a discussion about SE tax and how that affects their ultimate SS benefits.