A Limited Liability Company (LLC) is one of the most popular business structures. One of the key advantages of this structure is that it shields the owner from being personally liable. In other words, an owner’s personal property can generally be safe should the company face debts or legal challenges.
However, there are some exceptions to this. And, if you are a sole owner, you will likely face the risks personally.
Piercing the corporate veil
As mentioned, owners of an LLC generally cannot be held personally responsible for the liabilities of a company. However, “piercing the corporate veil” is one exception. This occurs when the separation between personal dealings and business operations becomes unclear.
There are several ways that this can happen. For example, if the business owner has failed to follow the relevant corporate formalities. For instance, if the owner has failed to file annual reports on time or neglected to document business activities appropriately.
Piercing the corporate veil can also occur when the business owner has commingled assets. For example, if assets have been transferred to and from the business owner and the company.
As a sole owner of an LLC, you take on the full burden of responsibility. You’ll be solely responsible for ensuring that you follow the relevant corporate formalities and don’t commingle assets.
Piercing the corporate veil occurs when the separation between business and personal activities is not entirely clear. We help business owners protect themselves from unnecessary liabilities. Please contact us for a consultation.