Webb City, MO asked in Business Law for Missouri

Q: Does an S-Corp protect the owner from losing their personal belongings or their cemi trucks they use for the business.

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1 Lawyer Answer
Robert Grant Pennell
Robert Grant Pennell
Answered
  • Manchester, MO
  • Licensed in Missouri

A: Creating a corporation (either under subchapter S or C) or a limited liability company to operate your business is a wise decision for multiple reasons, one of which is the protection of your personal assets. Typically, that means that your personal belongings and similar items could not be sought by creditors of the company alone. However, a business owner can contractually give up that protection by signing a personal guarantee of business debt. When a business owner first starts out it is commonplace for vendors to require the owner to sign a personal guarantee before the vendor will do business with the company. So, if you signed a personal guarantee, and the business fails to make the necessary payments, then the creditor can go after your personal assets. Additionally, if the business owner signs a contract in his own name rather than on behalf of the business, then the business owner can be personally liable for the debt since it is a personal debt instead of a business debt. Lastly, even if the debt is a business debt with no personal guarantee, the business owner can be held personally liable for the debt if the creditor is able to pierce the corporate or limited liability shield. Piercing is a fairly complicated issue but basically can occur if the business owner fails to treat the business assets separate from his/her own assets.

Incidentally, you reference having semi-trucks. Normally, such equipment would be owned in the name of the business as business assets, rather than owned by the business owner personally. As business assets, you would be able to depreciate the trucks for tax purposes, but they could be pursued by creditors. You should also know that if the basis for liability is the negligence of the business owner, then the owner's personal assets would be subject to collection efforts. For example, if the business owner T-bones another car at an intersection, the business owner is personally liable for his/her own negligent operation of the vehicle.

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