Protecting your personal assets from creditors and others is one of the more valuable reasons to form a limited liability company. Still, an LLC’s protections are not invincible. If a court pierces your LLC’s corporate veil, your personal assets may be in jeopardy.
Your LLC’s corporate veil is a legal separation between your organization and you. Here are four ways you can keep your LLC’s veil intact and protect your personal wealth.
1. Be good
Even though there are many legal protections for LLCs and their owners, judges do not usually like bad behaviors. If you use your LLC to break the law, cheat vendors or engage in other bad acts, you cannot expect its corporate veil to protect you personally.
2. Practice separation
Commingling your personal assets with those of the LLC is another way to lose limited liability protections. Accordingly, you should maintain separate accounts for your LLC and for your personal expenses. You also should think twice before taking a personal loan to support the business.
3. Capitalize appropriately
Some businesses require more capital than others. Still, if you have undercapitalized your venture, the LLC’s corporate veil may not offer much protection. That is, a court is not likely to penalize your creditors or others because of your LLC’s inadequate capitalization.
4. Follow procedures
Your LLC’s articles of organization probably outline some formal procedures. Following these procedures is not only good for business but it also may preserve your LLC’s corporate veil.
While your LLC limits your personal liability, it may not extinguish it altogether. Ultimately, by keeping your LLC’s corporate veil in the back of your mind at all times, you can likely reduce your chances of losing your personal wealth.