Piercing the corporate veil?

I was curious what things will make a judge ignore your corporation/llc. I’m pretty sure one thing is mingling all of your personal stuff with the company’s, like using 1 source of money for business and personal expenses.

The asset protection that entities seem to be able to offer is awesome, but I wouldn’t want to waste my time dealing with one if I were not sure that it would hold up in court. So, what are the typical reasons that a judge goes past a person’s corporation to the individual?

it’s a business; run it like one.

don’t comingle personal and business finances.
properly fund the entity.
have a bank account in the company’s name
use written contracts, proposals, offers - in the company name
submit expense reports rather than just “writing yourself a check”
keep good books and records
hold meetings of shareholders/members
keep minutes
did I say don’t comingle personal and business finances?

it’s a business; run it like one.

How little of a failure to comply entirely will render a corporation beatable? What are the most common failures people find?

comingling will kill you.

See, comingling, never holding meetings with recorded minutes, etc seemed very obvious to me, to prove that you didn’t just submit the papers and forget about it.

What seems more tricky is making sure you comply with every little ‘resolution’, like all the ones in this list:


Can a judge be tough and find a few little things you missed, like you didn’t mix money, properly assigned officers, had meetings and kept minutes, but didn’t always do everything through a resolution, and disregard your corporation?

Sorry to nitpick, I just still don’t have any idea how easily they can be cast aside. The price and pain of setting one up / running it, and the significant benefits, are serious things, that I wouldn’t want to do unless I was pretty damn sure I could count on the thing working for me.

(or question rephrased/summed: What are the minimum things you need to do to make sure your corporation is not ‘pierced’?)

I got my corp set up including the credit builder for about $2000 and don’t regret it. Keep it clean and it is a very good tool for keeping your personal assets safe. If your asking if you can screw people and get away with it because your a corp I would guess that the courts will BURST your veil and take down the officers and their personal assets as well. Remember EMRON!!!

Another one is if they only have to prove it was setup for assest protection only.
I myself dont think the extra time and cost are worth the LLC.
A good lawyer can usually find a way to break it. All they need is to find one little thing you did not do right. Read thru the forums on the web how many can you find that will say a LLC saved them in a suit? Must be one or two out there somewhere but dont think the extra work and cost are worth it.

Wow, rayh… That is how it was explained to me in person, by somebody who has nothing to do with REI. The way people talk about it makes it seem bulletproof, which seems to be a fantasyland hope or something. I wonder why people make them seem so simple, useful, and protective when the majority of the people who have them may very well be lacking the protection they think they have (and are paying for, and are wasting tons of time to maintain).

waste? tons of time? you gotta be kidding me?

no one, NO ONE should own investment property in their own name. ever. period.

it’s like painting a target on your head.

set it up for $400. takes about like 30 minutes a month to maintain. costs an extra $150 a year for another tax return.

if you take care of business and run it like a business you won’t have any problems. running the entity isn’t the problem. it’s not repairing that loose board in a timely manner that’ll get you in trouble.

rule #1: don’t do stupid stuff

can I name someone who’s entity has saved them? nope. you’ll never see those because they’re less likely to be sued in the first place. you see, the first thing an atty does is an asset search. got assets? he’ll take the case on contingency. no assets? he wants a retainer. Betty Sue ain’t got $5,000 for a retainer. case closed.

but I can tell you about my client who did NOT set up entities, got sued, and had to sell off three houses to settle the suit and make it go away. because HE HAD ASSETS traceable to his name.

But wouldn’t trusts have done that anyways?

But then you need an LLC as beneficiary? So confused.

Marc, I’m confused. The benefits you mention for LLC’s, stricly concerning asset protection, seem like they could be had through a simple trust. What LLC asset protection benefits are missing through a trust? So confused, sorry to be a pain.

asset protection benefits are substantially the same.

however, an LLC is a BUSINESS and that open lots of doors for deductible BUSINESS EXPENSES that trusts/beneficiaries cannot claim. (unless, of course, the beneficiary is an LLC, in which case why the trust?)

Aside from the deductions available for investors who have employees, what other significant kinds of deductions would a single investor get because of operating as an entity, that would not be available if operating as a sole proprietor?

you were comparing an LLC to a trust.

business expenses between an LLC and sole proprietor are substantially the same, although corps and LLC-as-corps have some significant employee benefit provisions.

I mis-wrote that last one. I’m asking what asset protection benefits an investor can get from operating as an LLC that they could not get by operating as a sole proprietor who holds property in trusts.

How are LLC’s and sole proprietorships the same amount of work? LLC’s have many formalities, unless i’m missing something here. Sole proprietorships / DBA don’t really seem to have any of those requirements.

Based on how I’m reading this thread, it still seems to me that a smaller time REI entrepreneur, who doesn’t employ others, doesn’t really have any incentives to go get / maintain an LLC, and would be just as well off using dba/sole prop and holding in trusts. Marc I don’t know if it seems like I’m trying to argue, but I’m not, I am seriously not grasping any reason why I’d want an LLC.

LLC’s taxed as corporations or S-corps do hold several advantages over sole proprietorships: ability to provide employee (and owner) benefits, avoidance of self employment taxes, just to name two big ones. There are lots of smaller benefits.

LLC’s are easier than trusts because you don’t have to work with an intermediary - the trustee. The LLC can buy, sell, whatever without having to work with a 3rd party. Plus, to remove/sell a property in trust, you have to dissolve the entire trust, then place whatever properties you are keeping back into a new trust. a big hassle for people who buy/sell often.

from a pure asset protection standpoint, they’re about the same. the point is to get the property out of your personal name.

Okay, so it’s actually easier to get property out of your name by putting it into an LLC than into a trust. Your LLC could be run like garbage, but would still effectively hide your relationship to the properties that you are controlling? Meaning you won’t be publicly revealed as controlling ABC llc?

yes. some may disagree.

well, running it like garbage could have other detrimental effects, including having the entity nullified by a court.

depending on your state, your ownership would still be public. however, remember, when the property is owned by the LLC, you are not personally liable for things that happen on the property. having someone know that you own the company is different from owning the property itself.