Piercing the Corporate Veil #assetprotectionplanning #llc

22 Mar 2023 · 1 min

Watch on YouTube

1:00

In this instructional video, the speaker explains how rental property investors use limited liability companies (LLCs) to protect personal assets from lawsuits related to the property. He outlines the common risk that claimants will attempt to "pierce the corporate veil" by arguing there is no real separation between the owner and the LLC, especially in single‑member LLCs. To prevent veil‑piercing, he advises three concrete steps: (1) have a written operating agreement and run the LLC as a legitimate business; (2) keep personal and business finances completely separate by using a dedicated bank account for all LLC expenses; and (3) consistently follow corporate formalities as outlined in the operating agreement. By adhering to these practices, owners can maintain the legal protection the LLC provides.

Chapters

A lot of you are investing in rental properties. Most of you probably know that creating a corporate entity and putting that property into it is a good way of insulating yourself from personal liability. For instance, if somebody gets hurt on the property and they decide to sue the LLC and you, in theory, the LLC will protect you against any attempt to recover from your own personal assets. But, and this will happen in most every case, the claimant will attempt to pierce the corporate veil and show that in truth, there is no separation between you and the LLC. So how do you show that there is separation between you and the LLC? And this is particularly important for single-member LLCs. First, you have to show that there is an operating agreement in place for the LLC and that you are in fact running it like a business. Second, you have to make sure that you are not commingling funds. You have a separate bank account for the company and it is only used for business expenses, nothing personal. Last, you have to show that you are maintaining corporate formalities, and you do that by showing that you actually did all the things stated in the operating agreement. Do all those things, you should be safe.