Maine is a business-friendly state. Manufacturing, arts, entertainment, and healthcare are just some of the industries that thrive in this state. The state is also experiencing a rise in a great number of startup companies. Thanks to its growing business economy. Thus, creating an LLC in Maine is, indeed, a good idea.
The Limited Liability When Creating an LLC in Maine
If you choose to create an LLC startup company in this state, you can enjoy limited liability protection. It means that if you borrow money and are unable to pay for it in full, your creditors can use your LLC but not you, as the business owner. Your investors are also protected.
This is one of the reasons many individuals want an LLC over other business structures. Thanks to this kind of protection. Your personal assets are safeguarded from your business debts and liabilities. If your business faces financial challenges or legal issues, your homes and savings are generally protected.
Situations Where You Can Be Personally Liable for LLC
Even though LLC owners’ personal assets are protected, there are situations where individuals may be personally liable for the debts and obligations of these business entities. It is crucial to be aware of these scenarios.
Personal Guarantees
If you personally guarantee a business debt or obligation, you become personally liable for that specific debt. Lenders or creditors may require personal guarantees, especially when the business is new or does not have an established credit history. By signing a personal guarantee, you agree to be personally responsible for repaying the debt if the business cannot.
Co-Mingling of Funds
If you mix personal and business finances, such as using your personal bank account for business transactions or vice versa, it can potentially pierce the corporate veil. This commingling of funds may lead to a court determining that the business is not a separate legal entity, making you personally liable for the debts and liabilities of the business.
Negligence or Fraud
If you engage in fraudulent activities, commit a crime, or operate the business with negligence, you can be held personally liable for the consequences. This may include debts incurred as a result of fraudulent transactions or damages arising from negligent actions.
Failure to Maintain Corporate Formalities
Failure to follow corporate formalities, such as holding regular board meetings, maintaining corporate records, and adhering to legal regulations, can lead to the corporate veil being pierced. If a court determines that the business is not being operated as a separate entity, personal liability may be imposed.
Unpaid Payroll Taxes
If you fail to pay payroll taxes, the IRS can hold responsible persons, including you as the owner and the officers of your LLC, personally liable for these unpaid taxes. The IRS can use the Trust Fund Recovery Penalty (TFRP) to pursue personal assets to cover unpaid payroll taxes.
As long as you pay your payroll taxes and other taxes imposed on your LLC, you are protected against lawsuits. Keep in mind that the default pass-through taxation of Maine LLCs simplifies tax reporting. Business profits and losses flow throughout to the member’s individual tax returns, potentially leading to tax savings.
Apply for an LLC in Maine
If you wish to protect your assets from creditors and other lawsuits, you should consider creating an LLC in Maine, instead of other business structures. To know more about the entire process, please contact the Corporation Center today.
