Remain Protected Under Your LLC
The last thing you want to find out is that, even though you
went to the time, trouble and expense of forming an LLC, you still
are personally liable for the debts of your company, i.e., debts
incurred in the name of the LLC. You will say to yourself, "But I
can't be personally liable, I have an LLC." Then, when you are
looking at your name in that lawsuit, becoming nervous about what
it means and wondering how this happened, you will start asking the
question, "Why hasn't my LLC protected me from personal
liability?"
In fact, you will begin to remember the selling points that made
you decide to use an LLC for your business. You will think about
the tax benefits your accountant told you about, and the minimal
cost incurred in forming the LLC, and the simplicity of it all. All
you had to do is file some organizational papers, and possibly
write up an operating agreement, and you would be off and running.
Ah, yes, then you will focus on one of the really important reasons
for using the LLC; your personal assets would be protected from the
debts of the company.
During the lawsuit you will hear the words "alter ego" and
"unity of ownership" as the basis for your personal liability and
begin to realize that simply forming that LLC was not enough to
protect you. If only someone had told you, that following some
straight forward procedures were important in maintaining the
protection that should otherwise be afforded by that LLC. Those
simple procedures are based on common sense, are easy to follow,
and can make all the difference in the world when it comes to
protecting your personal assets from your company's creditors.
Before you find yourself as a defendant in such a lawsuit, take
a few minutes to review the status of your LLC. How much money did
you use to capitalize the company, was it enough? Have there been
any changes in the LLC? Did you add any new members? Do you have a
statutory agent? Do you have a checking account used only for
company business? Have you paid for personal expenses from the
company's business checking account? Have you documented any loans
made to and by the company? Have you filed company tax returns?
Have you filed annual reports?
Take a few minutes to answer the questions now. You can also
prepare the uncomplicated paperwork needed to keep the financing
straight. Make the effort to keep the bank records in order.
Answering the questions now and spending the short amount of time
that it takes to keep the LLC in proper form, can save you
countless hours of worry and time in answering those questions as a
defendant in a lawsuit. Take some time to evaluate your LLC and
meet with your business professionals to help answer these
questions.
Valerie Marciano has been assisting companies in answering these
questions for over 20 years in the legal profession. Valerie is an
attorney with Jaburg & Wilk, P.C. and focuses her practice on
corporate transactions, real estate, bankruptcy and litigation. You
can learn more about Valerie and Jaburg & Wilk, P.C. by
visiting www.jaburgwilk.com or calling (602)
248-1000.
3200 North Central Avenue
. Phoenix . Arizona