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July 07 Simple Steps To Ensure That Your LLC's Creditors Do Not Get Access To Your Personal AssetsYeah - Still Busy With The "Day Job". Actually, I will be making minimal posts for the rest of July. Hopefully, August will be a little slower.
Today's post features an article from BusinessWeek that show you the many ways in which your LLC's creditors may get access to your personal assets despite limited liability protection. Under a regular "C" corp this would be called "piercing the corporate veil". I first learned of this concept when I was working as a summer associate at a national law firm as a law student. Our client was in the process of changing its legal structure and wanted to be aware of the steps it needs to take to ensure that creditors could never get access to the owners' personal assets. So, it was my job to research the reasons why courts sometime smash through the corporate veil of limited liabiity.
A review of the featured BusinessWeek articles show that the rules pertaining to LLCs are almost carbon copy of those for "C" corps. Courts may allow creditors access to your personal assets if you do not treat the "LLC as a separate entity" - i.e. you have been "treating [it] as an extension of [your] personal affairs." To avoid this, do not undertake the following:
Yes, this information is common knowledge, but it cannot hurt to take a moment for a quick refresher. Remember, as my June 16th post shows, creditors are extremely desperate and are now willing to use whatever leverage they have to get paid. Now that we know they are willing to put business loans on our personal credit report, we cannot give them any other reason to go after our other personal assets. As such, I'm advising you to take the time to read today's featured article - given everything that is at stake, I would say it's well worth your while.
Who Pays a Failed LLC's Debts?In theory, if a limited-liability company cannot pay up, then landlords and other creditors cannot come after the owners' personal assetsSmart Answers June 30, 2009, 9:39AM EST By Karen E. Klein Entirely Separate"The most important factor in ensuring liability protection is to treat the LLC as a separate entity. If a court feels that the owners have been treating the LLC as an extension of their personal affairs, then the court will often find that the LLC never really existed and that the owners were doing business as individuals. In that case, the court may find that, despite the fact that an LLC was in place, the individual owners are personally liable for the LLC's debts," Rahlfs says. TrackbacksThe trackback URL for this entry is: http://smallbizcoop.spaces.live.com/blog/cns!CFF20A3C12635897!262.trak Weblogs that reference this entry
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