LLC Liability Protection: What It Covers and Doesn't

The short answer

State LLC statutes say that a company's debts and liabilities are its own, and that a member or manager is not personally liable solely because of being or acting as a member or manager.
The protection is not absolute. A member can agree to be personally liable, for example by signing a personal guarantee, and Delaware law says so expressly.
States differ on what courts may consider before holding an owner liable. Wyoming lists fraud, inadequate capitalization, failure to observe formalities required by law, and intermingling of assets, and says that none of them alone, except fraud, is enough.
Florida law says that failing to observe formalities is not a ground for imposing liability on a member or manager.
The IRS can assess a personal penalty against a responsible person who willfully fails to collect or pay withheld income and employment taxes.

Table of contents

What the law says
What the shield does not do
When a court can look through the company
Habits that protect the shield
For a foreign-owned single-member LLC
LLC or corporation
What MyUSAService offers
Frequently asked questions

One of the main reasons founders form an LLC is limited liability: the idea that if the company cannot pay a debt, your personal assets are not automatically at risk. The idea is right, and it is often overstated. The protection comes from state law, it has limits, and part of it depends on how you run the company.

This guide explains what the statutes actually say and where the limits are. It is general information, not legal advice: ask a lawyer about your own case.

What the law says

Each state has its own LLC statute, and the core rule is similar in the states we compare.

Delaware. The debts, obligations and liabilities of an LLC, whether arising in contract, tort or otherwise, are solely those of the LLC. No member or manager is obligated personally for them solely by reason of being a member or acting as a manager.
Florida. A debt, obligation or other liability of an LLC is solely that of the company, and a member or manager is not personally liable for it solely by reason of being or acting as a member or manager.
Wyoming. The debts, obligations and other liabilities of an LLC, whether arising in contract, tort or otherwise, are solely those of the company, and do not become those of a member or manager solely by reason of acting as one.

The key words in all three are “solely by reason of”. Being an owner or a manager is not enough to make you liable for the company’s debts.

What the shield does not do

It does not cover what you agree to pay yourself. Delaware law states that under an LLC agreement or another agreement, a member or manager may agree to be personally obligated for any or all of the company’s debts. A personal guarantee on a bank loan, a lease or a supplier account is exactly that. Read every guarantee before you sign it.

It does not cover your own wrongful conduct. The statutes protect against liability that comes solely from being a member or manager. They do not say that a person is shielded from the consequences of their own acts. [Probabile]

It does not remove tax obligations of responsible persons. The IRS can assess the Trust Fund Recovery Penalty against a responsible person, meaning a person with the duty and the power to direct the collecting and paying of trust fund taxes, who willfully fails to collect or pay withheld income and employment taxes. If you hire employees, see our guide to payroll compliance.

When a court can look through the company

Courts in some situations hold owners liable for a company’s debts, a step often called piercing the veil. The rules are set by each state, and they differ.

Wyoming lists, in its statute, the only factors a court may consider: fraud, inadequate capitalization, failure to observe company formalities as required by law, and intermingling of the assets, operations and finances of the company and its members to the point that there is no distinction between them. The statute says that none of the factors alone, except fraud, is enough. It also says a court may not consider factors intrinsic to how an LLC works, such as electing to be treated as a disregarded or pass-through entity for tax purposes.
Florida says that the failure of an LLC to observe formalities relating to the exercise of its powers or the management of its activities is not a ground for imposing liability on a member or manager.

Two lessons follow. First, the rules are state-specific: check the state of formation and any state where you operate. Second, even where formalities are not required, mixing personal and company money is the conduct most likely to cause trouble, and it is the easiest to avoid. [Probabile]

Habits that protect the shield

Keep the company’s money separate. Use a company bank account only for company transactions, and never pay personal expenses from it. See our guide on bookkeeping and on opening a U.S. business bank account.
Capitalize the company for what it does. Wyoming names inadequate capitalization as a factor. A company that carries real obligations with no money behind it looks like a shell.
Sign in the company’s name. Contracts, invoices and leases should show the company as the party, with your title.
Keep the company in good standing. File the annual report, pay state taxes and keep the registered agent active. See annual report filing and annual compliance.
Have a signed operating agreement. It records ownership and management, and banks and counterparties often ask for it. See how to form an LLC.
Write contracts down, and have a lawyer review the ones that carry real risk: large sales, leases, loans, partnerships.
Keep records. Decisions, contributions and withdrawals should be documented.

For a foreign-owned single-member LLC

Being foreign-owned does not change the liability rules, and it does not change the tax filing duty: a foreign-owned single-member LLC files Form 5472 with a pro forma Form 1120 when it has reportable transactions. Record every transfer between you and the company separately: see zero-revenue U.S. companies.

LLC or corporation

Corporations also offer limited liability, under their own statutes and their own formalities. Our comparison of LLC and corporation tax treatment covers how they differ for foreign owners.

What MyUSAService offers

MyUSAService forms and maintains U.S. companies for owners abroad. We do not provide legal advice and we are not a law firm: for questions on liability, contracts and insurance, work with a lawyer. The Startup package costs $2,200, with the first-year state fees included for Florida and Wyoming. Prices as of September 2026.

Frequently asked questions

Does an LLC protect my personal assets?

State statutes say that members and managers are not personally liable for the company’s debts solely by reason of being or acting as members or managers. The protection has limits, and it depends on how you run the company.

Can I lose the protection?

In some situations courts hold owners liable. The rules are set by each state. Mixing personal and company money is the conduct most likely to cause problems.

Does a personal guarantee override the protection?

Yes for the amount you guarantee. Delaware law says expressly that a member or manager may agree to be personally obligated.

Do I have to hold meetings for an LLC?

Formality requirements vary. Florida law says failing to observe formalities is not a ground for imposing liability, while other states list it among the factors. Keep a signed operating agreement and written records anyway.

Does being taxed as a disregarded entity affect liability?

Tax classification and liability protection are different. Wyoming’s statute says a court may not consider a disregarded or pass-through tax election as a factor. Other states have their own rules.

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We discuss what protection covers and what it does not

Sources

First published June 11, 2025. This article is general information, not tax advice for your situation. MyUSAService packages and prices | Book a free call