Because of their flexibility and the legal protections they offer, limited liability companies (LLCs) are attractive structures for business owners. If you form a limited liability company, your creditors typically may not go after your personal assets to satisfy your venture’s liabilities.
Known as piercing the limited liability veil, judges and juries sometimes set aside limited liability protections and hold business owners responsible for debts and other obligations. Here are three ways to keep your LLC’s veil intact.
1. Separate business and personal matters
It may be tempting to use your personal accounts to pay for business expenses. Doing so, though, can be problematic. After all, if you commingle assets, the court may see little or no distinction between you and your business. Consequently, you should keep a firm separation between your personal finances and your business ones.
2. Behave reasonably and legally
Courts do not reward business owners who engage in fraud. If you use your LLC to defraud customers, creditors or others, you should not rely on your business’s structure to protect you. The same may be true if you use your LLC to break other laws.
3. Remember the principles of fairness
If you commingle assets or behave illegally, a court may use fundamental principles of fairness to pierce your LLC’s veil. That is, if your LLC has already blurred the lines of legality and structure, a judge or jury may hold you personally liable for the unpaid debts and court judgments of your LLC.
While setting up an LLC is one of the more effective ways to protect your personal wealth, your LLCs protections are not set in stone. Ultimately, by being a responsible and diligent business owner, you may keep a court from piercing your limited liability veil.