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A limited liability company (LLC) can sue or be sued in its own name. In fact, asset protection is one of the major reasons for forming an LLC. It places a wall of protection around your personal assets and limits an owner’s liability to the amount invested in the business. Limited liability means that your personal assets cannot be reached by business creditors—including judgment creditors.
CT Tip: The owner’s actions can breach this wall of protection. For example, if the owner co-signs a business loan and the company defaults, the lender can proceed against the owner. Similarly, if the owner consistently treats the business a personal piggy bank and neglects to maintain separate accounts and document transactions with the business, then the courts may disregard the entity as a sham.
If your business is sued, the court obtains jurisdiction over the company by delivering Service of Process to your Registered Agent. Service of Process is the shorthand for the legal documents that initiate a lawsuit: the Summons and the Complaint. The Summons is your official notice of the lawsuit and specifies how long you have to respond and the process for filing a response. The Complaint describes the basis for the lawsuit, such as a breach of contract or a “slip-and-fall” personal injury action. There might also be a subpoena that demands that your company produce certain documents and records.
The Registered Agent accepts these documents and then notifies and forwards them to the appropriate contact in your organization. Time is of the essence—generally, an answer or response must be filed within 20 days of the receipt of service. Therefore, it is critically important that your Registered Agent respond promptly and professionally and that your lawyer be involved as soon as you receive the notice of a lawsuit.
CT Tip: If your company does not have a Registered Agent or the address for the agent is not current, the lawsuit can still proceed. The court will use an alternative method to get jurisdiction over the LLC. This may mean that a default judgment can be entered against a business without the business having any opportunity to defend itself. In fact, the first the company may know of the lawsuit is when its assets are seized to satisfy the judgment. In some—but not all—cases a default judgment can be set aside, but having a professional registered agent can avoid the necessity for such an expensive and risky process.
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