One of the key benefits to most types of business formation is protection from personal liability. Business owners may choose an LLC, LP or corporation for various reasons, but all three generally protect the owners from any debts or lawsuits the business itself may face.

Personal protection is true in most cases…but not always. The protections offered by a business entity are limited. The current opioid crisis provides an example. Opioids are used in certain pain medications, like OxyContin. Although an effective tool to manage pain, the medication has been found to be highly addictive and has resulted in the deaths of an estimated 218,000 in the United States from 1999 to 2017. 

State officials have noticed these numbers and they are not happy. They have taken steps to hold those responsible for these deaths and the countless other patients struggling with addiction accountable. The most recent step: suing the manufacturers and individuals behind the medication.

Wait — how can states sue business owners? So how could various state attorney generals’ hold the family behind the corporation personally liable for the misuse of OxyContin and other opioids? In this case, the states argued the family members and business owners had knowledge of the dangers of these medications and continued to push for use of these prescription drugs for their own personal gain. States throughout the country have filed lawsuits against those associated with opioid medications, naming defendants like Purdue Pharma and the Sackler family.

If the state can establish the business owners intentionally put aside the good of the public for their own gain, they could find success piercing the corporate veil.

A recent example is Oklahoma. State officials did not pursue their case against Purdue Pharma and the Sackler family all the way to a court decision; instead they agreed to a multi-million-dollar settlement.

Take away lesson: Know the protections offered by your business entity. Business entities are valuable legal tools for business owners. Various entity options offer various levels of protection and tax benefits. An attorney experienced in this area of the law can review your business needs and discuss the benefits and risks associated with each option.