Can You Be Sued Personally if You Have an LLC?
A limited liability company (LLC) is supposed to do one thing above all else: protect your personal assets from business liabilities. And most of the time, it does. That’s the whole reason many small business owners in Oregon and Idaho form an LLC in the first place. It creates a legal wall between your business’s debts and your personal finances.
But that wall can be thinner than you think.
Yes, LLCs provide liability protection—but only if you treat the LLC like a separate legal entity. If you blur the lines between your personal and business finances, or fail to follow basic formalities, a court can “pierce the veil.” That means they can ignore the LLC entirely and hold you personally responsible.
Let’s talk about when that happens—and how to avoid it.
What LLC Protection Doesn’t Mean
First, the basics. Forming an LLC means your business is its own legal person. If your LLC gets sued, the plaintiff is suing the company—not you as an individual. If your LLC takes on a loan and can’t repay it, the lender generally can’t come after your house, your car, or your personal bank account.
But that protection isn’t unlimited. Some debts and obligations always pierce the veil, even if your LLC is in perfect legal shape:
Personal guarantees: If you personally guarantee a lease or loan, you’re on the hook, no matter what entity you sign through.
Taxes: The IRS doesn’t care about your LLC when it comes to payroll tax withholdings, certain trust fund taxes, or fraud penalties.
Malpractice or personal wrongdoing: If you personally commit fraud, injury, or professional misconduct—even while working for your LLC—you can be sued directly.
So even in normal circumstances, your liability shield isn’t total. But the bigger risk is when your own behavior causes the court to ignore the LLC entirely.
When Courts Pierce the Veil
Oregon and Idaho courts generally respect the LLC structure. But they can disregard it when the owner fails to treat the company as separate. This usually happens in one of three scenarios:
1. Commingling Funds
If you’re using your LLC’s bank account to pay personal bills, or vice versa, you’ve erased the line between yourself and the company. Courts see that as evidence the LLC is a sham.
2. Undercapitalization
If you start a business with no meaningful assets, can’t pay debts, and never had a plan to, that can also trigger veil-piercing. The idea is that you set up an LLC just to dodge responsibility—not to run a real business.
3. Failure to Follow Formalities
While LLCs don’t have the same rigid requirements as corporations, you still need to keep clean records. That means separate bank accounts, proper accounting, and documented decisions—especially if you have business partners.
If a judge sees your LLC as nothing more than a front for your personal dealings, they can hold you personally liable for the business’s debts and judgments. This is true even if you filed everything correctly with the Secretary of State.
Real-World Examples
Let’s ground this in Oregon and Idaho scenarios.
A Eugene contractor runs all his personal expenses through his LLC’s checking account—mortgage, groceries, car payments. When a subcontractor sues for nonpayment, the court pierces the veil and allows the subcontractor to go after the contractor’s personal assets.
A Boise-based Amazon seller forms an LLC but never opens a business account. She deposits customer payments into her personal checking account and pays vendors from a credit card in her own name. When she’s sued for product defects, she has no records to show separation. The LLC protection evaporates.
A Bend massage therapist signs a lease for a treatment space under her LLC but also signs a personal guarantee. She defaults. Even though her business was structured properly, the landlord can collect from her directly because of the personal guarantee.
How to Protect Yourself
If you want your LLC to do its job, you have to do yours. Here’s how:
Keep separate bank accounts: No exceptions. All business revenue and expenses should flow through the LLC account. Pay yourself through transfers labeled as draws, guaranteed payments, or payroll—depending on your tax structure.
Don’t mix assets: Don’t pay your mortgage from the business account or buy groceries on the LLC credit card. And don’t deposit personal funds into the LLC without documenting it properly.
Use contracts properly: Always sign contracts in the name of your LLC—not your personal name—and make sure your clients and vendors understand they’re doing business with the company.
Avoid personal guarantees when possible: This isn’t always realistic, especially for leases or loans—but it’s worth negotiating. If you do sign one, understand it bypasses your LLC shield.
Maintain records: Even if you’re a solo operator, keep some level of documentation. Operating agreements, financial statements, meeting notes (if you have partners)—these all reinforce that the LLC is a real entity.
Final Thoughts
An LLC is a legal tool, not a magic spell. Used correctly, it protects your personal assets from business liabilities and gives your company a clean professional identity. Used sloppily, it’s just a filing fee and a false sense of security.
So yes—you can be sued personally, even if you have an LLC. But that outcome is almost always preventable.
Need help cleaning up your structure, evaluating a liability risk, or setting up a new LLC the right way from day one? Track Town Law can help you build it right—and keep it protected.
