The answer depends on the business structure, what happened, and whether the owner acted properly or improperly. When someone harms you through a business, you can often sue the business itself as a separate legal entity. However, if the owner personally caused the harm or mixed personal finances with business finances, you may be able to sue the owner directly or both. About 70% of civil lawsuits involve questions about which party to sue, making this one of the most important decisions in any legal claim.
Understanding who to sue shapes your entire case from start to finish. The decision affects how much money you can recover, what insurance covers your claim, how long your case takes, and whether you actually get paid. This article breaks down the rules that apply across the country, shows you real examples, and answers your most common questions about suing businesses and their owners.
What You’ll Learn
🔹 The difference between suing a business and suing its owner, and how each works
⚖️ How different business structures (LLC, corporation, sole proprietorship) change who you can sue
🛡️ When you can “pierce the corporate veil” and sue the owner personally despite business protection
📋 Real-world scenarios showing exactly who to sue in different situations
❓ Answers to your most common questions about business liability and owner responsibility
The Legal Difference Between a Business and Its Owner
When someone creates a business, the law often treats that business as a separate legal person. This separation exists under federal law and in every state. The business can own property, sign contracts, hire workers, and face lawsuits all on its own. The owner stands apart from these actions legally, even though they started and run the company.
This legal separation is called “limited liability.” It means the business’s debts and legal problems stay with the business, not the owner. If someone gets hurt at a store and sues, they typically sue the store itself, not the person who owns it. The owner’s personal bank account, house, and car stay protected because the law sees the business as its own entity.
The reason this rule exists is straightforward: without it, running a business would be too risky. People would not start companies if they knew they’d lose everything they own when the business faced a lawsuit. Limited liability encourages people to create jobs and businesses.
The Business Structures That Matter Most
Corporations: The Strongest Protection for Owners
Corporations create the thickest legal wall between the business and its owner. When you create a corporation, the law immediately recognizes it as a completely separate legal person. The corporation, not the owner, owns the building, equipment, and money. The corporation signs the contracts and employees work for the corporation.
If someone sues a corporation, the lawsuit stops at the corporation’s assets. The owner’s personal money cannot be touched to pay the judgment. A corporation can be large with many shareholders or small with just one owner. The protection stays the same either way.
Corporations must follow strict rules to keep this protection. They need to hold official meetings, keep written records, pay annual fees to the state, and keep business money separate from personal money. When corporations fail to follow these rules, courts may remove the liability protection.
Limited Liability Companies (LLCs): Flexibility With Protection
An LLC offers similar protection to a corporation but with fewer rules to follow. The LLC is a separate legal entity just like a corporation. The owner, called a “member,” is not personally responsible for the business’s debts or lawsuits. If you sue an LLC, you sue the LLC itself, not the member.
LLCs have become very popular because they provide strong protection while being easier to operate than corporations. They do not require formal meetings or detailed record-keeping. However, they still require the owner to keep business and personal finances separate and conduct business through the LLC.
The protections work the same way as a corporation in most situations. If an LLC causes harm, the injured person sues the LLC. The member’s personal bank account stays protected. If the LLC does not have enough money to pay the judgment, the member does not have to pay from personal funds.
Sole Proprietorships: No Legal Separation
A sole proprietorship is the simplest business structure. It means one person owns and operates the business with no legal separation from the business. The owner and the business are the same in the eyes of the law. For this reason, there is no limited liability protection.
When someone gets hurt or harmed through a sole proprietorship, they can sue the owner directly. The business name might appear in the lawsuit, but the lawsuit really targets the owner’s personal assets. The owner’s house, car, and savings are all at risk. The law does not separate the owner from the business finances or debts.
Many people start businesses as sole proprietorships because they are free or nearly free to create. No filing fees or paperwork goes to the state. The trade-off is total personal liability. Everything the owner owns can be taken to pay a judgment.
Partnerships: Shared Personal Liability
In a general partnership, two or more people own a business together. Like a sole proprietorship, a general partnership does not create legal separation between the owners and the business. Each partner can be personally liable for the business’s debts and legal problems.
If the partnership harms someone, that person can sue the partnership or the individual partners. They can collect from any partner’s personal money. Each partner is responsible for the mistakes of other partners. One partner’s actions can create liability for all partners.
Limited partnerships work differently. A limited partner who only invests money and does not run the business has protection similar to a shareholder in a corporation. However, the general partner who runs the business stays personally liable.
When You Can Sue Only the Business
When a business is properly organized as a corporation or LLC, and the owner follows the rules, you can typically only sue the business itself. This happens in most normal situations where someone gets hurt at the business, buys something that harms them, or is wronged by the business’s workers.
A customer slips on water at a grocery store and breaks her leg. The store’s owner properly runs the store as an LLC and keeps all finances and records in order. The injured customer sues the LLC, not the owner. The LLC’s insurance pays for the injury. The owner is not personally involved in the lawsuit.
A worker at a factory is injured by equipment that the factory failed to fix. The factory is a corporation with separate bank accounts and proper records. The injured worker sues the corporation. The corporation’s assets and insurance respond to the claim. The corporation’s owner is not named in the lawsuit and does not appear in court.
A person buys a defective product from a retail chain that is organized as an LLC. The defective product causes injury. The buyer sues the LLC as the seller of the product. The LLC’s insurance covers product liability. The owner, as long as the LLC was properly maintained, faces no personal liability.
In these situations, limited liability protection works as intended. The owner stays protected, and the injured party can recover from the business’s insurance and assets.
When You Can Sue the Owner Personally
You can sue an owner personally in several situations. The most common situation is when the owner personally caused the harm. Another situation is when the business is not properly maintained as a separate legal entity. Understanding these situations helps you identify the right defendants for your lawsuit.
The Owner Caused the Harm Directly
When the owner personally caused harm, you can always sue the owner, even if the business is a properly maintained corporation or LLC. The business’s liability protection does not shield an owner from their own wrongdoing.
A restaurant owner personally serves alcohol to a person they know is intoxicated. The intoxicated person drives and injures someone else in a car crash. The injured person can sue the restaurant owner personally because the owner personally made the choice to serve the intoxicated person.
An owner of a construction company personally operates equipment without proper training and injures a worker. The worker can sue the owner personally for negligence. The business liability protection does not apply because the owner was acting as an individual, not acting on behalf of the business entity.
A business owner sexually harasses an employee. The employee can sue the owner personally. The business liability protection does not extend to personal wrongdoing by the owner.
Piercing the Corporate Veil: The Most Important Exception
The biggest exception to limited liability is called “piercing the corporate veil” or “piercing the LLC veil.” This legal concept means a court removes the protection between a business and its owner. When a court pierces the veil, the owner becomes personally liable for the business’s debts and legal judgments.
Courts pierce the veil only in special situations. The owner must have done something seriously wrong, not just ordinary mismanagement. The business must lack enough funds to pay the judgment. The protection must be important to removing the injustice in the case.
Piercing the veil is difficult but possible. Courts do not do it frequently because the whole purpose of corporations and LLCs is to protect owners. If courts pierced the veil often, the business form would lose its value. For this reason, courts set a high bar for piercing the veil.
| Situation | What Happens |
|---|---|
| Owner mixes personal and business money in one bank account | Court may pierce veil and hold owner personally liable for business debts |
| Owner deliberately hides business assets to avoid paying creditors | Court may pierce veil when fraud is discovered |
| Owner uses business as a fake front for personal transactions with no real separation | Court may treat business as fake and pierce veil |
| Owner fails to maintain corporate records or hold required meetings for years | Court may decide business is not real and pierce veil |
| Owner takes all business profits out personally and leaves business unable to pay debts | Court may pierce veil if other factors also show disrespect for business form |
Courts look at factors to decide whether to pierce the veil. Did the owner mix personal and business money? Did the owner use the business to commit fraud or hide assets? Did the owner completely ignore the rules that come with forming a corporation or LLC? Did the owner fail to keep business records? Did the business have so little money that it could not pay for basic operations?
A business owner creates a corporation and gets insurance. The owner then deliberately crashes one of the company trucks into a building to collect the insurance money. The injured property owner can sue the owner personally because the owner committed fraud using the business as a tool. The court will pierce the veil.
Another owner creates an LLC for a consulting business but runs it like a hobby. The owner and business use the same bank account. The owner takes clients’ money and spends it on personal items. When a client sues for stolen funds, the court may pierce the veil because the owner never treated the business as a separate entity.
However, simply making a business mistake or losing money does not mean a court will pierce the veil. Business failure alone is not enough. The owner must have seriously crossed the line.
A business goes bankrupt after losing money for three years. The owner made poor decisions about marketing and staffing. The creditors cannot pierce the veil just because the business failed. The liability protection still applies.
When Dangerous Behavior Removes Protection
Courts sometimes hold owners personally liable when the owner engages in extremely dangerous behavior through the business, even without piercing the veil technically. This happens most often in cases involving willful or criminal conduct.
An owner knowingly sells contaminated food that makes hundreds of customers sick. The owner ignored health inspections and covered up problems. Injured customers can sue the owner personally because the owner’s conduct was willful and reckless. Courts view this as the owner personally committing harmful acts, not just the business having an accident.
An owner of a nursing home creates conditions that harm elderly residents through neglect and cruelty. Staff members ignore residents’ basic needs on the owner’s orders. Residents’ families can sue the owner personally for the intentional infliction of emotional distress and elder abuse.
These cases differ from accidents or ordinary negligence. The owner must have engaged in conduct that was intentional, reckless, or showed extreme disregard for others’ safety.
Three Real-World Scenarios
Scenario One: A Slip and Fall at a Retail Store
Sarah visits a popular clothing store at the mall. The store is organized as an LLC with multiple store locations. While Sarah shops in the shoe section, she steps on a wet spot that a staff member did not mark or clean up. Sarah slips and breaks her arm.
Sarah goes to a lawyer to file a lawsuit. The lawyer confirms that the store is a properly maintained LLC with separate bank accounts, regular business records, and proper business procedures. The lawyer decides to sue the LLC as the defendant. The store’s liability insurance covers slip and fall accidents.
The store’s insurance company settles the claim for Sarah’s medical bills and pain and suffering. Sarah receives payment from the insurance company. The store owner is not personally named in the lawsuit. The owner’s home and personal savings are not at risk.
This scenario shows how limited liability protection works in a normal case. Even though the store’s negligence caused Sarah’s injury, the owner avoids personal liability.
| Action | Result |
|---|---|
| Sarah slips on wet floor at store operated as LLC | Store’s insurance covers the injury claim |
| Lawyer confirms LLC is properly maintained with separate records | Sarah sues the LLC, not the owner |
| Owner is not personally involved in lawsuit | Owner’s personal assets stay protected |
Scenario Two: A Worker Injured at a Construction Company
Marcus works for a construction company that is organized as a corporation. The corporation has 15 employees and operates several job sites. Marcus is injured when he uses a piece of equipment that the company failed to maintain and repair. The broken equipment causes Marcus to lose part of his finger.
Marcus hires a lawyer and files a workers’ compensation claim first. Workers’ compensation is a special insurance system for workplace injuries. In most states, workers’ compensation is the only remedy for ordinary workplace injuries. Marcus recovers workers’ compensation benefits.
However, Marcus discovers that the company owner knew the equipment was broken and dangerous. The owner refused to spend money fixing it to save costs. Marcus’s lawyer files a lawsuit against the corporation for willful conduct. The corporation’s workers’ compensation insurance and general liability insurance help pay the claim.
Because the owner’s conduct was particularly reckless and the injury was foreseeable, the lawyer considers whether the owner should be sued personally. The lawyer gathers evidence showing the owner deliberately risked workers’ safety. A court may decide that the owner’s willful disregard for safety removes liability protection in this case.
If the lawyer sues both the corporation and the owner, the corporation will likely pay through insurance. The owner may be held personally liable if evidence shows the conduct was intentional or reckless, not just negligent.
| Action | Result |
|---|---|
| Equipment fails and injures Marcus at corporation-run job site | Workers’ compensation insurance covers the injury |
| Investigation shows owner knew equipment was broken | Attorney considers suing owner for willful conduct |
| Owner deliberately ignored safety despite known danger | Owner may face personal liability if conduct is intentional |
Scenario Three: Fraud at a Small Consulting Business
Jennifer hires a business consultant to help her start a clothing boutique. The consultant operates through an LLC. Jennifer pays $15,000 upfront for a business plan and consulting services. The consultant promises specific deliverables by specific dates.
After three months, Jennifer realizes the consultant has done almost no work and has not delivered anything promised. Jennifer demands her money back. The consultant refuses. The LLC bank account shows the $15,000 went directly into the consultant’s personal bank account almost immediately. The LLC never maintained separate finances. Business records do not exist. The consultant took the money as personal income.
Jennifer’s lawyer files a lawsuit. The lawyer discovers several red flags. The LLC was created just before Jennifer hired the consultant. The LLC has no legitimate business records. The consultant mixed personal and business money completely. The LLC exists only on paper. When the lawyer investigates, the LLC has no real employees, office, or business operations—just the consultant.
A court will likely pierce the LLC veil in this case. The consultant used the LLC as a fake front to hide personal fraud. The consultant never respected the LLC as a separate business. A court will hold the consultant personally liable for the fraud and order repayment of the full $15,000.
| Action | Consequence |
|---|---|
| Consultant takes $15,000 and does minimal work | Jennifer files fraud lawsuit against LLC |
| Investigation shows LLC is fake with no separation from owner | Court likely pierces veil due to fraud |
| Consultant personally liable for returning $15,000 plus damages | Jennifer recovers from consultant’s personal assets |
When the Owner Might Face Personal Liability
Several situations create personal liability for owners even when a business is organized correctly as a corporation or LLC. Understanding these situations helps you know when to name the owner as a defendant in addition to the business.
Contracts the owner signs personally. If an owner signs a contract in their personal name rather than as an agent of the business, they are personally liable on that contract. If the contract is breached, you can sue the owner directly.
Taxes and wages owed to the government. Owners can be personally liable for unpaid payroll taxes and employee wages in certain situations. Federal law holds responsible persons personally liable for unpaid payroll taxes. State laws often hold owners liable for unpaid wages.
Fraud or criminal conduct. When an owner personally commits fraud, even through the business, they face personal liability. If an owner personally commits a crime, criminal liability attaches to the owner, not the business. The business may also face liability, but the owner cannot hide behind limited liability when they personally commit wrongdoing.
Environmental violations. Federal environmental law holds owners of contaminated property personally liable in some cases. An owner who knowingly allows hazardous waste to be dumped on business property may face personal environmental liability.
Sexual harassment and discrimination. When an owner personally engages in harassment or discrimination, the owner can be sued personally. The business can also be sued, but the owner’s personal conduct creates personal liability.
Violations of professional licenses. When a business requires the owner to hold a professional license (like a doctor, lawyer, or contractor), the owner faces personal liability for violations of licensing rules. The business may also face liability, but the owner’s license is on the line personally.
Common Mistakes to Avoid
Mistake One: Assuming the business is always responsible. Many people believe that if they were injured by a business, they can only sue the business. In cases involving the owner’s personal conduct or fraud, you may need to sue the owner directly or in addition to the business. Failing to name the owner when their personal conduct was involved may cost you money.
Mistake Two: Suing only the owner when a well-organized business exists. If you sue only the owner of a properly maintained corporation or LLC when a legitimate business caused your injury, you may face a problem. The owner may not have sufficient personal assets to pay a judgment. You should sue the business itself because the business likely has liability insurance. The insurance company will pay your claim rather than relying on the owner’s personal bank account.
Mistake Three: Assuming an LLC or corporation always protects the owner. Business structure matters, but it is not absolute protection. If the owner treated the business as a fake front or mixed finances completely, courts may pierce the veil. If the owner personally caused the harm, structure does not matter. Do not assume the business is protected without looking at the specific facts.
Mistake Four: Ignoring evidence of fraud. When investigating a business, look for signs that the owner committed fraud. Mixed bank accounts, fake records, business never actually operating, assets hidden, and similar red flags suggest fraud. When fraud exists, do not accept the business structure at face value. Fraud can pierce the veil and create personal liability.
Mistake Five: Focusing only on the business when the owner had direct control. Sometimes the owner was directly involved in causing the harm. An owner who personally supervised, ordered, or knew about the harmful conduct should be named as a defendant. Focusing only on the business when the owner’s personal involvement is clear weakens your case.
Mistake Six: Failing to investigate the business structure. Do not assume the business is organized as you think. A business might operate as a sole proprietorship even though it has a business name. It might be organized as an LLC but fail to maintain it properly. Request business records and formation documents to confirm the actual structure. The wrong assumption about business structure can cause you to sue the wrong defendant.
What Happens When You Sue Both the Business and the Owner
When you file a lawsuit against both the business and the owner, both can be defendants in the same case. Both can be represented by lawyers. Insurance companies may pay for one or both defendants. The case may settle with both parties, or the case may go to trial with both present.
Courts will separate their liability and defenses. The business may argue it is a properly maintained LLC with liability protection. The owner may argue they did not personally cause the harm. Each defendant gets to defend their own liability. A court may find the business liable while finding the owner not personally liable. Or a court may find both liable. Or a court may find neither liable.
Practically, insurance money often matters more than which defendant pays. The business’s liability insurance usually covers injuries caused by the business’s operations. The insurance company pays the claim regardless of whether the judgment is against the business or the owner. When you collect from the insurance, it does not matter as much who was technically sued, as long as the insurance covers the situation.
However, when the owner’s personal conduct is involved, personal liability insurance (homeowners insurance, umbrella insurance, or professional liability insurance) may apply to the owner. These policies sometimes cover personal liability. When business liability insurance does not cover the harm, the owner’s personal insurance may.
When you sue both, you give yourself the best chance of recovery. If the business does not have enough insurance or assets to pay, you may recover from the owner. If the business is not actually liable, you may still recover from the owner. If the owner is judgment-proof (has no assets), you may still recover from the business and its insurance.
Do’s and Don’ts When Deciding Who to Sue
| Do | Don’t |
|---|---|
| Do investigate the business structure before filing suit—request formation documents and corporate records | Don’t assume a business is a corporation or LLC without confirming through state records |
| Do name both the business and the owner when the owner was personally involved in causing harm | Don’t sue only the owner of a properly maintained LLC or corporation when the business caused ordinary negligence |
| Do look for signs of fraud like mixed bank accounts, fake records, and assets hidden from creditors | Don’t accept the business’s liability protection at face value if red flags of fraud exist |
| Do work with a lawyer to evaluate which defendants to sue and what insurance may apply | Don’t delay hiring a lawyer while confusion exists about who caused your injury and who to sue |
| Do gather evidence showing the owner’s personal involvement or knowledge in harmful conduct | Don’t assume limited liability protection applies when the owner personally committed wrongdoing |
Pros and Cons of Suing the Business Versus the Owner
| Pros of Suing the Business | Cons of Suing the Business |
|---|---|
| Business likely has liability insurance that will pay claims | May discover business has no assets or insurance |
| Insurance company provides lawyers and handles defense | Business may argue it is not liable |
| Faster settlement possible with insurance adjuster | Business may claim owner acted outside scope of authority |
| Clearer legal liability often exists when business caused injury | Liability protection may prevent owner recovery |
| Insurance typically covers business operations liability | Insurance may deny coverage in certain situations |
| Pros of Suing the Owner | Cons of Suing the Owner |
|---|---|
| Owner’s personal assets become available if owner loses | Owner may have little personal wealth despite running business |
| Owner cannot hide behind liability protection if conduct was willful or criminal | Personal liability insurance may not cover all situations |
| Owner’s personal insurance may cover liability in some cases | Owner may declare bankruptcy and eliminate judgment |
| Creates pressure for settlement to protect owner’s personal wealth | Suing owner personally may seem unfair if business was responsible |
| Owner may be more motivated to settle than business | Owner may have no homeowners or umbrella insurance |
How Different Business Structures Determine Liability
Sole Proprietorship Liability
In a sole proprietorship, there is no difference between the business and the owner. You can sue the business or the owner, and you are suing the same person. The owner’s personal assets are at risk for business debts and liabilities. If you get a judgment against a sole proprietorship, you can collect from the owner’s house, car, bank accounts, and wages.
A person who runs a plumbing business as a sole proprietor causes damage to a customer’s home during a repair job. The customer can sue the plumbing business and collect from the owner’s personal assets. The owner’s home and car are available to satisfy the judgment. The owner cannot argue that liability should stop at the business because no separate business entity exists.
General Partnership Liability
In a general partnership, all partners are personally liable for the partnership’s debts and legal judgments. You can sue the partnership as an entity, or you can sue the individual partners. Any partner’s personal assets are available to pay the judgment. Each partner can be held liable for the other partners’ negligence or wrongdoing done in the course of business.
Two friends start a marketing agency as a general partnership. One partner is negligent on a client project and causes financial harm to a client. The client can sue the partnership and the other partner personally, even though the other partner did not directly cause the harm. The other partner’s personal assets are at risk because they are in a general partnership.
Limited Partnership Liability
In a limited partnership, limited partners are protected from liability like shareholders in a corporation. Limited partners invest money but do not manage the business. General partners manage the business and remain personally liable for partnership debts and liabilities.
You can sue a limited partnership just like an LLC or corporation. Limited partners are not sued personally in normal cases. However, if a limited partner takes an active role in managing the business and makes a negligent decision, they may lose their protection and become personally liable.
LLC Liability
An LLC is a separate legal entity. Members of an LLC are not personally liable for the LLC’s debts or legal judgments in normal circumstances. You sue the LLC, not the members. However, a member can be liable for their own negligence or wrongdoing.
An LLC operates a gym. A member who is also the gym manager negligently fails to maintain equipment properly. When a member is injured by the broken equipment, the member can sue the LLC. The member can also sue the manager personally because the manager caused the harm through personal negligence.
If the LLC was created as a fake front and finances were mixed completely, a court may pierce the veil and hold the member personally liable for the LLC’s debts.
Corporation Liability
A corporation is a separate legal entity. Shareholders are not personally liable for corporate debts or legal judgments. You sue the corporation, not the shareholders. Shareholders’ liability is limited to their investment in corporate stock.
A corporation operates a manufacturing plant. The plant negligently releases pollution that harms neighbors. The neighbors can sue the corporation. The corporation’s shareholders are not personally liable. If the corporation does not have enough assets to pay the judgment, the shareholders cannot be forced to pay from personal funds.
However, if the corporation was created to hide assets or commit fraud, a court may pierce the veil and hold shareholders personally liable. If a shareholder personally caused the harm, the shareholder can be sued for personal negligence.
How Insurance Affects Who You Sue
Liability insurance is often the most important factor in determining who actually pays your claim. The insurance company pays claims within the policy limits rather than the defendant paying from personal funds. Knowing what insurance exists affects your strategy for naming defendants.
Business liability insurance covers claims for bodily injury, property damage, and personal injury caused by the business’s operations. This insurance covers most ordinary negligence claims. The business is sued, and the business’s insurance company pays. This is why most injured people collect from insurance rather than from the defendant’s personal assets.
Workers’ compensation insurance is required in every state for most businesses with employees. This insurance covers workplace injuries to employees. Injured workers typically recover through workers’ compensation rather than through personal injury lawsuits. In exchange, workers usually cannot sue the employer for ordinary negligence.
Professional liability insurance covers claims against doctors, lawyers, architects, engineers, and other licensed professionals. This insurance covers claims that the professional failed to meet professional standards. The insurance company pays claims within policy limits.
Homeowners and umbrella insurance may cover personal liability for the owner. If the owner is sued personally, their homeowners or umbrella insurance may cover personal liability claims. However, these policies typically do not cover liability for business activities. Business insurance and homeowners insurance do not overlap.
Directors and officers insurance covers liability for decisions made by corporate directors and officers. This insurance may cover claims against owners personally when they are sued for decisions made in their capacity as directors or officers.
When you investigate who to sue, also investigate what insurance exists. The insurance company will likely handle the defense and pay the claim. Knowing what insurance exists helps your lawyer develop strategy about which defendants to name.
Special Situations and Exceptions
When the Business Cannot Pay: Successor Liability
Sometimes a person or company buys an existing business. Normally, the buyer is not liable for the seller’s old debts or liabilities. However, in some situations, the buyer becomes liable for the seller’s liabilities. This is called successor liability.
Successor liability typically applies when the buyer clearly intended to continue the same business. If the buyer buys all of the business’s assets and continues operating the same business in the same location with the same employees, courts may hold the buyer liable for old liabilities.
If you were injured before the business changed hands, you may be able to sue the new owner of the business. You may also still be able to sue the old owner. Understanding successor liability matters when the original business owner is no longer in business.
Piercing Veil for Unpaid Employee Wages
Courts are more willing to pierce the corporate veil to recover unpaid employee wages than for other claims. Federal law and state laws give employees strong protection for unpaid wages. Courts view unpaid wages as a serious violation that justifies piercing the veil.
If an employee was not paid by an LLC or corporation, the court is more likely to pierce the veil and hold the owner personally liable for unpaid wages than it would be for other debts. This reflects the legal system’s strong protection for workers.
Parent Companies and Subsidiaries
When a large corporation owns another corporation through a subsidiary structure, injured parties sometimes try to sue the parent company. Generally, shareholders are not liable for the corporation’s debts unless they personally caused the harm or the veil is pierced. A parent company is usually not liable for a subsidiary’s debts just because it owns the subsidiary.
However, if the parent company actively involved itself in the subsidiary’s harmful conduct, or if the subsidiary was created as a fake front for the parent company, a court may hold the parent liable. If the parent company controls the subsidiary’s safety decisions and those decisions cause harm, the parent may be liable.
Federal Contractors and Government Liability
When a private business is a federal contractor, special rules apply. Federal contractors may have liability limitations or special insurance requirements. Government agencies may also have immunity from certain claims. These federal rules interact with state business liability law in complex ways.
When you have a claim against a federal contractor, consult with a lawyer who knows federal contractor law. Standard business liability rules may not apply.
The Importance of Business Structure Going Forward
If you run a business or are thinking about starting one, the business structure matters greatly for protecting personal assets. A sole proprietorship exposes your personal wealth to business liabilities. An LLC or corporation creates a wall between your personal assets and business liabilities.
The protection requires maintaining the business as a separate entity. Keep business finances separate from personal finances. Use a separate business bank account. Maintain business records and follow the formalities required by your business structure. Have adequate business liability insurance.
When you follow these practices, you build strong protection against personal liability. When you ignore these practices, you risk a court piercing the veil and removing the protection.
Frequently Asked Questions
Can I sue both the business and the owner?
Yes. You can name both as defendants in the same lawsuit. The court will determine each defendant’s liability separately. Both may be liable, only one may be liable, or neither may be liable depending on the facts.
If the business has no insurance, can I sue the owner personally?
Yes. If the business has no insurance or insufficient insurance, you can pursue the owner’s personal assets. However, confirm the business structure first. An LLC with no insurance may protect the owner from personal liability anyway.
Does a business name mean it is a corporation or LLC?
No. A business name does not indicate structure. A sole proprietorship can have a business name. Always check state business records to confirm actual structure. Contact your state’s secretary of state office or business registrar.
Can an owner escape liability by creating a fake business?
No. Courts will pierce the veil and hold the owner personally liable if the business was created as a fake front. Using a business structure fraudulently to escape liability does not work in court.
What if the owner says they were unaware of the harm caused by their business?
Lack of knowledge is not a defense in civil liability for personal injury. An owner can be liable even if they did not know about dangerous conditions. An owner should have known about safety issues in their business.
Do I need a lawyer to figure out who to sue?
Yes. Consult a lawyer before filing suit. A lawyer can investigate the business structure, identify defendants, and determine what insurance applies. The lawyer can advise which defendants to name and develop the best strategy for your claim.
If I sue the wrong defendant, can I change it later?
Yes. Most courts allow you to add defendants after filing suit if you discover new information. However, delays may harm your case or exceed deadlines. Investigate correctly before filing to avoid needing changes later.
Can limited liability protection be removed by the insurance company?
No. Insurance companies cannot remove liability protection. Only courts can pierce the veil through legal proceedings. Insurance may not cover certain conduct, but that is different from removing liability protection.
What if the business is in a different state than where the injury occurred?
You can still sue the out-of-state business in your state under certain conditions. Many states allow suits against out-of-state businesses that do business in the state. Talk to your lawyer about jurisdiction and where to file the lawsuit.
Can I sue an owner for crimes committed by employees if the owner did not commit the crime?
Yes, in some cases. If the owner knew about the crime or created conditions that allowed the crime, you may have a claim. Owners can be liable for employee misconduct under certain circumstances, particularly regarding safety violations and discrimination.
Related reading
- Can an LLC Really Protect You From a Lawsuit? – Yes, But Don’t Make This Mistake + FAQs
- Can You Really Sue an LLC Owner? Yes – But Don’t Make This Mistake + FAQs
- Do I Really Need Business Insurance if I Have an LLC? + FAQs
- Does a Corporation Really Protect Personal Assets? (w/Examples) + FAQs
- Can Shareholders Be Personally Liable? (w/Examples) + FAQs
- Who Should Be a Named Insured on a Commercial Policy? (w/Examples) + FAQs
- An LLC Can Do That? – All Features Explained + FAQs