How to Protect the Liability Shield of Limited Liability Companies (LLCs)

4:37 pm Business Planning

Safe1 150x137 How to Protect the Liability Shield of Limited Liability Companies (LLCs) One of the main reasons that business owners form limited liability companies (LLCs) is to protect their personal assets from any business claims.   That protection is referred to as a liability shield.

However, if the proper steps are not taken to protect the liability shield of an LLC, a court may “pierce the veil” of the LLC and hold members personally liable for any claims.  Here are steps that LLC managers and members can take to protect their LLC liability shield:

Do Not Use the LLC for Serious Misconduct. The courts may pierce a LLC’s veil if members or managers use it to commit fraud or other serious misconduct.

Refer to the LLC in All Communications.  Members should expressly refer to the LLC in all dealings with third parties so it is understood they are dealing with the LLC, not with the LLC’s members in their individual capacities.

Keep Finances Separate.  To keep the LLC legally separate, all financial accounts for the LLC should be separate and apart from those of the individual members.

Keep the LLC Adequately Capitalized.  Some courts may pierce the veil if the LLC lacks adequate capitalization.

Follow the Rules.  Although LLCs do not have the same formal requirements as corporations, there are some rules that must be followed to protect LLC status.

Get started by contacting our Orange County asset protection estate planning law firm as soon as possible.

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