How to Avoid Piercing of the LLC Veil
The following are recommended procedures to help prevent the piercing of the limited liability’s protection to its members from becoming personally liable in a law suit from the law suit’s claims, obligations and debts against the limited liability company. This is called piercing the limited liability veil.
____ 1. DO discuss forming an entity with your attorney and accountant to determine whether a Limited Liability Company (LLC) is the best option for your business.
____ 2. DO select name of Limited Liability Company (LLC) and check with the Ohio Secretary of State for name availability.
____ 2. DO file Articles of Organization for a Domestic Limited Liability Company with the Ohio Secretary of State.
_____ 3. DO have a written Operating Agreement with terms and goals specific to this LLC including, but not limited to:
_____ a. number of members in LLC
_____ b. percentage of each member’s interest in the LLC;
_____ c. purpose of LLC;
_____ d. whether there is a general manager and, if so, the powers of the general member to act on behalf of the LLC;
_____ e. a member’s ability to transfer, convey or sell all or part of a member’s interest to another member or a third party;
_____ f. voting and deadlock provisions, if necessary;
_____ g. rules about capital contributions (i.e. whether mandatory, how much can be asked for at a time);
_____ h. estate planning related provisions; and
_____ i. input by accountant.
____ 4. DO work with your accountant to determine whether the LLC needs its own EIN number for tax purposes or whether it will operate under a sole member’s social security number. Do obtain an EIN from the Internal Revenue Service if necessary.
_____ 5. DO set up at least one checking account in the name of the LLC and make sure all LLC related monetary transactions go through an LLC bank account. DO NOT COMMINGLE LLC AND PERSONAL FUNDS IN A BANK ACCOUNT.
_____ 6. DO obtain at least one credit card in the name of the LLC and make sure only LLC related expenditures are charged on the LLC credit card. DO NOT CHARGE PERSONAL TRANSACTIONS ON THE LLC CREDIT CARD.
_____ 7. DO make sure that you sign on behalf of the LLC and NOT as an individual on any documents including but not limited to, checks, contracts, leases, mortgages, notes, purchase agreements, loans. An example signature block:
USA, LLC, an Ohio Limited Liability Company
Print name: _________________
Its: Member/ General Manager/Agent (whichever designation is applicable)
_____ 8. DO make sure that any contracts, leases, vendor agreements, suppliers, orders, mortgages, purchase agreements, loans, etc. for the LLC are in only the name of the LLC and NOT your personal name
_____ 9. DO NOT treat the LLC as your personal financial institution. DO run the LLC totally independent of your personal finances as a separate and distinct entity so that the LLC does NOT default to a sole proprietorship. DO NOT COMMINGLE PERSONAL ASSETS AND DEBTS WITH THE LLC’S ASSETS AND DEBTS.
_____ 10. DO NOT personally guarantee debts and/or obligations of the LLC either in writing or verbally unless you plan on being personally liable for the debts and/or obligations of the LLC.
_____ 11. DO have an email account that is used solely for LLC business. DO NOT use your personal email account(s) and/or personal social media accounts for LLC business. communications.
_____ 12. DO make sure that all insurance policies, licenses, permits, etc. are in the name of the LLC and NOT your personal name.
_____ 13. DO make sure that the LLC files its own tax return or that the LLC is reflected on your personal tax return, whichever is appropriate per your accountant.
_____ 14. DO invest in and use a good accounting software that will allow you to manage the LLC’s finances. DO check with your accountant for a software suggestion so that you can allow easy access to the LLC’s software by the accountant if desirable.
_____ 15. DO have a separate phone number for the LLC, whether cell phone number or landline.