19 Aug Limited Liability Company Protections

One of the major benefits associated with organizing your business as a limited liability company (LLC) is the ability to shield your personal assets from business liabilities.  However, this protection is not guaranteed.  LLCs will receive treatment similar to corporations, both in terms of the risk of veil piercing and the range of actions required to prevent a successful veil piercing.

An entity’s “veil” presumably shields personal assets of an LLC’s owners (called “Members”) from claims against the LLC.  However, if an LLC cannot satisfy its liabilities, the protection of the “veil” may be disregarded.  This so-called “piercing the corporate veil,” when successfully done, allows a claimant to reach a member’s personal assets to satisfy the business liabilities.  In Ohio, three elements must be established to pierce the corporate veil: (1) the company is merely an alter ego of its members; (2) control over the entity was exercised to commit fraud or an illegal act; and (3) injury or unjust loss resulted from such control.

To lessen the risk of being personally liable for your LLC’s debts and liabilities, follow these simple principles:

  • establish a clear and separate identity for the LLC apart from its members (including a separate office, stationery, books, and assets);
  • clearly designate the LLC as the entity entering into and executing business agreements and contracts intended to bind and benefit the LLC (including insurance policies);
  • maintain adequate business and taxation records;
  • use company funds and property exclusively for company purposes;
  • don’t “dare” potential claimants sue by arguing that “the LLC doesn’t have any money or assets you can reach, and that the reason we formed it”; and
  • don’t commit any fraud or illegal conduct causing injury or unjust loss to third parties.

For more information on these principles and techniques and how to avoid personal liability as a member of a limited liability company, contact Attorney Jacqueline Ferris MacLaren, with MacLaren Law, LLC, at (614) 855-6527 or jackie@maclarenlaw.net.  This information is designed to provide a general overview with regard to the subject matter covered and is not to be construed as legal advice.