Piercing the Corporate Veil Will Destroy Your LLC

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Posted on: 1st Jul 2014

You must avoid piercing the corporate veil. It will not only destroy your business, but can also wipe out your personal financial assets in the process.. By definition, piercing the corporate veil is a legal procedure that occurs when a company is sued by a complainant, and is ordered by a court of law to pay for damages suffered by the plaintiff. If the plaintiff is only able to recover a portion of the damages from the company, he is not legally permitted to pursue the company owner�s personal assets. However, he can get a court order to break the company�s liability shield. If successful, he can then recover the remainder of his damages by going after the company owner�s personal assets. To avoid this with your own LLC, you must follow state and federal legal requirements in order to remain in corporate compliance, and to protect your LLC from getting destroyed. This editorial will discuss the required guidelines.

Follow the Corporate Formalities
You are required to follow corporate formalities through both state and federal regulation as your first step to avoid piercing the corporate veil. Corporate formalities include creating and revising an operating agreement, delivering membership certificates, maintaining a membership transfer ledger, and holding annual meetings of both members and managers.

Keep Detailed Records of All Business Dealings
Business dealings include keeping track of spending, and investing measures, recording all business meetings. Safely store all other formal written agreements such as contracts, covenants, and business transactions. These records must be kept for at least seven years in order to avoid piercing the corporate veil.

Keep the Minutes of All Board Member Meetings
Board member meeting minutes include discussions on daily business dealings, mergers agreements, shares and dividend reports, asset sales, and audit reports. Some states will even allow you to keep the minutes without physically attending the meetings. In any case, you are generally required to keep the minutes of all board member meetings to avoid piercing the corporate veil.

Stay Away from Fraud
Committing fraud of any kind is a federal offense, and needs to be avoided at all cost. In a word, stay away from fraud. It is usually easy to prove, and thus will make it difficult for you to avoid piercing the corporate veil once you have been caught.

Don�t Commingle Your Business and Personal Funds
Keep all business and personal assets separate, and keep separate bank accounts for each. Whatever funds go into your business needs to stay in your business, and must only be used in connection with your business. The same also applies to your personal funds. Commingling funds is a very serious offense, and you must steer clear of it if you want to avoid piercing the corporate veil.

Identify Your Business Using the �LLC� Initials
Many states require that you use the initials �LLC� at the end of your business name in all advertisements whether they be printed in local ads or through online marketing. Therefore, make sure to add the initials to all business-related correspondence and promotional pieces. This will help get your business noticed by the public as well as help you to avoid piercing the corporate veil.

Pay Your Annual Corporate Taxes
Generate invoices in the name of your LLC to send to all of your clients. Keep clean and well-organized records of profits and losses, and always file your corporate taxes by March 15 of each taxable year.

Keep Your Business Capitalized
Federal law requires that all limited liability companies maintain adequate operating funds or capital in order to stay in compliance. If your LLC is found to be undercapitalized (making it difficult to comply with a court-ordered judgment) it will be deemed as being non-compliant with federal regulations and get stripped of its corporate shield. Therefore, avoid piercing the corporate veil by keep your business capitalized.

Conclusion
Every business must follow the rules and regulations specified by the state and federal government in order to stay in corporate compliance. Therefore, make sure to follow these basic steps to avoid piercing the corporate veil for your LLC.

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Piercing the Corporate Veil Will Destroy Your LLC

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