Are You at Personal Risk if Your Business is Sued?

The risks of being a small business owner are often thought of in terms of the business itself, but what about your personal risk? If your business is sued, are you at risk of losing your assets like your home, car, or retirement savings? Can you sue a business owner personally, or does the business structure protect them from individual liability?

These are questions that many small business owners do not think about until it is too late. The short answer is yes – you are potentially at risk of losing your personal assets if your business is sued, depending on how your business is structured. A lawsuit could potentially put your personal assets in jeopardy if a creditor goes after them to satisfy a debt or judgment. 

If you own or plan to start a business in 2026, you need to understand these differences before problems arise. Our Naperville business law attorney can help you choose a business structure that suits your goals and protects your interests. 

Can You Sue a Business Owner Personally in a Sole Proprietorship or Partnership?

If you own a sole proprietorship or general partnership, then you and any other owners are personally responsible for the debts and liabilities of the business. Creditors can pursue you personally for payment, meaning that any personal assets, such as a house, car, or savings account, could be at risk. 

Under Illinois law, there is no legal separation between you and your business in these structures. If a customer sues your business for an injury, or if a vendor sues for unpaid bills, they can collect from your personal bank accounts and property. Naperville sole proprietors and general partners face the highest level of personal risk when lawsuits are filed against them.

Does an LLC or Corporation Protect You From Personal Liability?

If your business is structured as an LLC or a corporation, then you are generally not held personally liable for business debts and claims against it. The Illinois Limited Liability Company Act (805 ILCS 180) says that members and managers of an LLC are not personally liable for the debts, obligations, or liabilities of the company. 

Similarly, Illinois law protects shareholders and officers from personal liability for corporate debts. This separation between the business and the owner is often called the corporate veil. When properly maintained, this veil shields your personal assets from business creditors and lawsuit judgments.

However, there can be exceptions and sometimes you can still be held personally liable even if your business is an LLC or corporation. Illinois courts can “pierce the corporate veil” if your business was found to have acted negligently or fraudulently, or if you failed to maintain the separation between personal and business affairs. 

Courts in DuPage County and throughout Illinois look at several factors when deciding whether to hold an owner personally responsible, including whether you:

• Mixing personal and business funds
• Failed to follow corporate formalities
• Undercapitalized the business
• Used the business to commit fraud

What Are Common Situations That Lead to Personal Liability for Business Owners?

Even with an LLC or corporation, certain actions can expose you to personal lawsuits. For example, personal guarantees on loans or leases make you individually responsible for those debts, regardless of your business structure. Likewise, if you personally injure someone or commit fraud, you can be sued personally, even if the conduct happened during business operations. 

Naperville business owners who sign contracts without making clear they are acting on behalf of the company may find themselves personally liable for those agreements. Additionally, if you fail to pay payroll taxes or violate certain regulations, state and federal agencies can hold you personally responsible even if your business is structured as an LLC or corporation.

How Can You Protect Your Personal Assets From Business Lawsuits?

The best way to protect yourself from personal liability if your business is sued is to make sure that you have a separate entity structure and that it is properly maintained. This means setting up the business as an LLC or corporation, getting appropriate insurance coverage, keeping accurate financial records, and following all laws and regulations associated with running a business in Illinois. Taking these steps creates a clear boundary between you and your business in the eyes of the law.

Specific actions you should take include:

• Maintain separate bank accounts for your business and never mix personal expenses with business funds
• Hold required annual meetings and keep minutes if you have a corporation
• File all required reports with the Illinois Secretary of State and pay annual fees on time
• Sign contracts and documents in your capacity as an officer or member, not as an individual
• Buy adequate business liability insurance to cover potential claims
• Keep detailed financial records that show the business operates independently
• Capitalize your business properly so it has enough funds to meet its obligations

Can You Change Your Existing Business Structure?

If you realize your business structure does not protect you from personal liability, you may be able to make changes. You can convert a sole proprietorship or partnership into an LLC or corporation, though this will not protect you from liabilities that arose before the conversion. 

You can also strengthen an existing LLC or corporation by correcting past mistakes, like commingling funds or missing required filings. However, making changes after you know a lawsuit is coming may not provide the protection you hope for. Illinois courts are skeptical of business owners who suddenly try to shield assets once legal trouble begins. The best time to set up proper protection is before problems exist.

Contact a DuPage County Business Structure Lawyer 

Our Naperville business law attorney at Gierach Law Firm can help you choose a business structure that meets your needs while reducing personal liability as much as possible. We can also help you understand your legal rights and responsibilities if your business is currently at risk of being sued. 

With over 30 years of experience, we provide knowledgeable representation for all types of businesses throughout DuPage County and the greater Chicago area. Call us today at 630-756-1160.