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Maintaining Liability Protection of an LLC

Many business owners decide to form limited liability companies (LLCs) for several reasons. One benefit of LLCs is that they provide protection for owners from personal liability for business debts. However, once you form an LLC, you cannot assume that the liability protection is without limits.

There are many situations in which other parties might try to hold LLC owners personally liable, which is often referred to as “piercing the corporate veil.” There are steps owners should take to maintain their LLC liability protections.

Conduct Formal Accounting

An LLC seems like a relatively laid-back business entity, especially since there are far fewer filing and record requirements than corporations. However, owners should not become too relaxed with their records.

If you are informal with your business accounting and management, it might strip away your liability protections. If you want your LLC to be taken seriously as a liability shield, you need to take its operation and finances seriously.

Keep Your LLC Separate

Many LLC owners form the entity and then continue operating as a sole proprietorship or partnership, in which there is no separation between personal and business finances. If you do not make a clear distinction between your personal and business finances, the court might deem your LLC as an alter ego or “mere instrumentality” of the owners, allowing creditors to pierce the corporate veil.

Always be sure to:

  • Maintain separate accounts for you and the LLC
  • Avoid commingling personal and LLC funds
  • Document any loans that owners take from the LLC
  • Avoid using LLC funds for personal expenses

Contact a Business Lawyer in Savannah

The best way to maintain your LLC’s protections is to seek guidance from a Savannah business attorney at Kuhn Firm, P.C. Call 912.574.4373 or contact us online to learn how we can help your company.