Charlip Law Group L.C.

Keeping The Protection Of An LLC

Last updated on: May 24, 2022

One of the key protections offered by a limited liability corporation (LLC) business structure is the protection the business owner receives with regard to his or her personal assets in the event of a lawsuit against the business. However, even with a properly formed LLC, it is possible for a business owner’s actions to open him or her up to liability and lose personal assets.

When a business owner forms the business as a LLC, the personal assets of the members of the LLC are protected because the LLC is seen as a separate and distinct legal entity. Therefore, a person suing the LLC can only recover from the LLC, unless they can pierce the corporate veil. Piercing the corporate veil is a legal process that allows a creditor of a business to go beyond the protections offered under the corporate form and reach the assets of the business owners.

When can the corporate veil be pierced?

Generally, under Florida law, the corporate veil cannot be pierced unless the plaintiff can show that the LLC being sued was a mere shell or alter ego for the business owner, and was organized for the purpose of conducting fraudulent activity. As with most other lawsuits, the plaintiff also has to link the fraudulent activity of the LLC to the harm caused to him.

There are several ways in which a business owner may act that can lead a court to conclude that it is appropriate to pierce the corporate veil. The most important ones are the lack of corporate formalities in the running of the business, and the commingling of personal and business funds and assets. Formalities may include keeping up with Department of State filings, if required, and having an operating agreement if there are multiple members in the business. Business formalities may be more common with corporations than with LLCs; however, if there are requirements to be followed, the business owner should ensure they are followed. It is important for a business owner, especially the owner of a single member LLC, to ensure that whenever he or she conducts business, it is in the name of the business and it is properly documented as business activity. Additionally, the business owner should ensure that their personal spending is not drawn from the business account without proper accounting, and that the business account is held in the business name.

There are additional ways for a business owner to protect their assets when forming a LLC to ensure protection even in the event of a court piercing the corporate veil, including getting liability insurance. When choosing a legal structure to form a business under, the aspiring business owner should seek legal counsel to explore all the options available for personal asset protection.

Contact a North Miami Business Law Attorney

If you are a small business owner seeking to form an LLC or other corporate structure, consult an experienced business law attorney to ensure that you have a solid plan in place to protect you’re your personal assets. Contact a North Miami business law attorney at the Charlip Law Group L.C. for a consultation today.

Share With Friends
Contact Us

Tell us about your legal concern

Related Posts