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A limited liability company, or LLC, is a business that protects its owners, members and itself from certain legal liabilities. Think of it as a merger between a partnership and a corporation; it possesses a pass-through tax status like a partnership, yet offers limited-liability protection like a corporation (meaning the members are not personally responsible for the actions or debts of the company). LLCs also protect the business against personal lawsuits.

Though LLCs protect members from wrongdoings of the company, they cannot protect you from personal liability for your own wrongdoing. Your assets will be at risk if you’re deemed liable. An LLC’s protection is limited, however, and not as comprehensive as a liability insurance policy. So does forming an LLC protect you from a lawsuit? The simple answer is not always.

Unfortunately, accidents happen. Even cautious people who follow safety protocols can fall victim to a business liability claim. A doctor can prescribe a wrong medicine that causes an adverse reaction. A CEO can take clients sailing to discuss business, leading to a person falling overboard and drowning. A supervisor can ask a worker to disable a safety mechanism in order to increase production, resulting in a worker getting injured. In similar situations, an LLC status may not protect the business owner from legal responsibility.

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