Basic Liability

Basic Liability

There are two basic forms of liability that arise for most people. A Personal Liabilityand a Professional Liability. We’ll discuss those below. But first, when we talk about legal liability in the context of the services we provide, we’re talking about an obligation that is imposed on someone due to statutory, contractual or judicial mandate and it arises out of some action or inaction on your part. The obligation is almost always a monetary payment for some kind of damage you caused. When you can’t make the monetary payment, the other party can get a court order to attach (or go after) assets you own. Therefore, part of our service is to help you protect those assets.

Personal Liability: This kind of liability comes from your daily actions as an individual. This might mean driving car, skiing or even invited people over to your house. We usually think of this kind of liability as that caused by an accident. If you drive your car and are found responsible for an accident, you are liable for the damages to the other party. The same is true if you are skiing and run into someone.

With the car example, you probably have insurance liability coverage in some amount. But if the damages exceed the insured amount, you are then “personally” liable for the remainder. In this case, a court can attach ANY asset you own, including savings accounts, jewelry, stocks, cars, homes and even business interests. Retirement accounts and, in some cases, your personal residence is exempt.

There are a few ways to protect yourself from this kind of liability. The first is additional insurance coverage called an “umbrella” policy which will kick in and cover the damages. You can also use a trust, but these can be pierced if a court determines that it’s just a way to avoid liability. An irrevocable trust is pretty much impenetrable, but comes with drawbacks. The best thing to do is consult with an attorney to determine about what types of assets you are protecting and plan a method that is best for you.

Professional Liability: This kind of liability comes for what you do in your business. It doesn’t matter whether you paint houses, invest in real estate or make movies. You run liability anytime you engage in business with others. It might mean liability on a contractual debt, a tenant’s accident in a rental property, or an injury caused by a product you sold. Once this liability occurs, you are responsible to pay for the damages and the injury party has to decide whom to sue to recover. If the injury was caused in the due course of your business, they will have to sue the business entity you established.

You established a business entity to protect your “personal” assets from the liability you incur in your business. If you have the property entity with all the legal documents and have maintained it appropriately, then the liability will stop at the corporate level. The judgement can’t attach your personal assets. Any asset your business owns is subject to judgement, but oftentimes that is nothing and your business simply files for bankruptcy, sparing your personal assets.

The plaintiff (the injured party that is suing you) will try and “pierce the corporate veil.” That is, try to convince the court that your business is really an “alter ego” of you (indistinguishable from your person) and therefore it is really “you” that is liable. That way, they can go after your personal assets. So, how do you keep the plaintiff from breaking through your corporate liability protection?

Easy! Set up the right kind of entity, have all the legal documents, run the business according to those documents, don’t commingle funds, hold your meetings and comply with all laws. What you want to do is build a strong case that you are a legitimate business. The more evidence the better. One of the best pieces of evidence is having a corporate attorney as part of your business and in attendance at your meetings.

At Breglio Law Office, we do more than just provide the legal documents, we help you understand how to run your company and can act as your corporate counsel. We can even attend your meetings. We provide the SERVICE that helps you protect your business.


Protect What You’ve Earned!