OPERATING IN THE CORPORATE OR LLC FORM DOES NOT NECESSARILY MEAN NO PERSONAL LIABILITY FOR DEBTS
One of the most unpleasant things small business owner’s discover is when they have signed a guaranty of a debt of their business and they are personally liable notwithstanding the fact that the business is incorporated or a limited liability company. In fact, there are times individuals are held liable even if they do not sign a personal guaranty. For example, American Express agreements say they are governed by the law of Utah. In Utah an individual can be held liable without signing a credit card agreement personally. Some Courts in New Hampshire have enforced this law against individuals even if the card is just a small business card.
FIDUCIARIES CAN BE LIABLE IN NH FOR THEIR INCAPACITATED PARENTS NURSING HOME DEBTS
In addition, since 2013 New Hampshire has enacted a law holding fiduciaries who have a Power of Attorney over an incapacitated loved one for negligently applying for and not obtaining Medicaid benefits for their incapacitated loved one. So, if I have a POA for my mother and she has dementia and no assets, I can be held personally liable for her care if Medicaid denies coverage and somehow it is my fault—which could mean almost anything. The recommendation that elder law attorneys make is to have your own attorney help you with the Medicaid application. Do not rely on the nursing home. People are being sued—and are shocked—that just by helping a demented or incapacitated person they can be held personally liable for care of such a person without signing a guaranty of the account. As the saying goes, buyer beware. If you receive a thick packet of paper upon admission or from another lender—look at it—ask questions—take it to a lawyer. I cannot tell you how many times I have had a client surprised by his or her liability and how it has affected how they respond to collection. Documents matter, please read them and ask questions.
BE CAREFUL WHEN YOU SIGN AN ACCOUNT AGREEMENT
When you set up a new account, read the document in full. Make sure you are not signing it personally. Put next to your name your title in the corporation or llc. Put below your name, “not individually”. These acts make a world of difference in a default situation. You are not protected from liability through an entity form if you sign personally. Make sure your letterhead and website and business cards have “inc.” or “llc” on them. Proactive conduct like these actions will insulate you from personal liability in most instances. If you do not do these things, my experience with the Courts is that you will at a minimum have a fight over liability and if you sign as guarantor, you will be liable. Please make sure you know what you are signing at all times. If you have questions, you can contact me.
KEEPING YOUR ACCOUNTING SEPARATE IS VERY IMPORTANT IN MAINTAINING SEPARATE CORPORATE FORM
If you have created a separate entity, treat it that way. Honor all formalities—if there needs to be a vote, have a vote, create by laws and for an llc an operating agreement and follow it. Have separate bank accounts and insurance from your personal accounts. In essence treat your entity as a living breathing separate person. Do not commingle funds and if you lend or borrow from the entity document it. If you created an entity to establish limited liability it is important that you establish a separate existence between you and the entity.
THERE IS A NEW SMALL BUSINESS CHAPTER 11 SECTION OF THE BANKRUPTCY CODE
Over the years, at times, it has been difficult for Chapter 11 filers to comply with the Bankruptcy Code because the provisions are one size fits all, and that size is big multi-national corporations. Now Congress has enacted small business provisions which streamline the process for Chapter 11. The limit for qualification is $2.75 million of undisputed debt. Call us. See if you qualify.