The rules of LLC businesses protect individual owners from becoming personally liable for any loans made to the business. However, it’s best to seek legal advice in your state to make sure you know where you stand.
Dear Your Business Credit,
I had a commercial vehicle loan solely for my LLC business. I am not a co-signer for the loan. Business was very slow and eventually stopped. Now I have a collection agency threatening to damage my personal credit, but they don’t have my Social Security number. (I never gave it to them nor did I have to provide it for the business loan).
I understand the rules of an LLC corporation protect me from my business liabilities. So, if I volunteer to work out some payment arrangements with the collection agency, will I be also agreeing to be liable for the debt as if I had provided my Social Security number before getting the loan?
Also, since the vehicle lien is with the original bank’s name, is it correct to believe that the collection agency cannot provide me with a pink slip for the vehicle title after all agreed payments are made? – Aziz
See related: Payments made to your LLC are harder to garnish
I ran your question past two attorneys, and neither thought, based on the information you shared, that you are personally liable.
“Generally speaking the whole reason that you formed a business organization is to avoid personal liability for things, including debts,” said Matthew Fornaro, an attorney in Coral Springs, Fla., in an email. “If you did not individually co-sign or guarantee the loan, the creditor is out of luck. Their only option would be to allege in a court of law that your LLC is your alter ego, meaning that you set up the LLC solely to dupe creditors, and seek to attach individual liability. This scenario is not that likely.”
Similarly, attorney Maikel N. Eskander, a partner in Eskander Loshak in Ft. Lauderdale, Fla., noted that from the sound of your question, you did not personally guarantee the loan. “Therefore, there is no personal liability,” he said in the email.
“The fact that the finance company (lender) did not get the Social Security number of the individual provides further support of the fact that the individual is not personally liable on the loan,” Eskander added.
Beyond that, if the business has closed and creditors remain, there is a chance they may try to pursue the individual owners of the LLC personally, Eskander said. “To do this, they will generally have to go to court and file suit against the individual(s) personally,” he explained.
See related: Who is responsible for business card debt?
Not individually liable for debt? Don’t volunteer payment
Regarding your question on voluntary payment arrangements, making them may not be necessary. “Since you likely are not individually liable, there is little reason to pay as an individual,” Fornaro explained.
As for giving you title, it does not appear the collection agency can do that.
“Only the titleholder to the vehicle can pass you title,” Fornaro said in his note. “Unless the bank agrees to transfer title in writing, you have nothing.”
In your situation, it would be well worth it to book some time with an attorney to review your situation so you know whether you can rest easy.
As Eskander noted, “the law varies in each state,” so it’s important that you speak with an attorney in your home state to make sure you know where you stand.