Piercing The Vail
Guys, I have a quick question regarding the limited liability of my LLC. I have a separate checking acount, debit card, and credit card for my llc. I only handle business related purchases with these accounts. However, I do transfer money electronically from my business checking account to my personal checking account. (This is how I take profits out of my LLC). In the event of a lawsuit, will this serve to pierce the vail and allow them to come after my personal assets? If so, how else can I take profits from my LLC?
Do you give yourself a w-2 or any type form. If you do the right accounting transfering money electronically is no differant than writting a check.
Best to you
Sire
I do not issue myself a W-2, as I do not pay myself a salary from the business. It is a single member LLC under which I flip propferties. I remove cash from the LLC and transfer it to my personal name electronically. Also, if I write myself a check from the business, for what purpose do i claim the money on my tax return?
My accountant and lawyer both told me that when I need to write myself a check to call it a Member Draw... since I am a Member of my LLC.
Have a member board meeting annually and record meeting minutes notes. Follow all the rules in your LLC guide book your lawyer gave you when they formed the LLC. If you do not, a lawyer can claim that you are not a true LLC and they can then "Pierce The Corporate Veil" to your personal assets.
Nobody has yet to mention the obvious; setting up a legitimate demand loan from a company to you personally. Record the document but keep an internal company document that proves the loan has been paid off that you can produce for future creditors if you want to get a loan. That document is not recorded. In the event of a lawsuit, the first thing the claimant’s council will do is a public record asset search showing a large debt you owe another company. Since they would be second in line behind the 1st company with regards to debt collection, they will usually drop the claim, especially if your debt to the first company is larger than the second company’s claim. As far as separating you personally from the company that you have the loan with, this is a simple matter using a couple of LLCs and an LP. Ownership information of LLCs and LPs is not even collected by several States. Members of LLCs need not be financial owners of the company. Ownership of LLCs and LPs is an internal company document that can change on a day to day basis if you wish. Even if a member is an owner of an LLC, he can pledge his ownership as collateral for a personal loan to another LLC. Moreover, the best way to fund an entity is with debt, not equity. Then the money LLC #1 used to by real estate was actually a loan from another LLC or LP that can be called at anytime and LLC #1 has pledged the real estate it owns as collateral for the loan. Few potential claimants will pursue LLC #1 when they figure out that any assets titled to it are pledged as collateral for a demand loan to another company.
tmckay,
4Kash knows what he/she posted. The technique is generally called equity stripping and it is highly effective as any potential creditor would have to prove such a transaction was entered into with the intent to defraud them before being able to "unwind" or set aside such a transaction.
As for piercing the corporate veil, have your top level LLC in NV, state law prohibits piercing the veil except in fraud cases. In addition keep good records for the LLC, hold annual (or more) meetings and document the minutes, and keep all personal transaction seperate. Paying yourself, even electronically, is fine, that will not pierce the veil, provided you have the corasponding documentation in the LLC files to show that it was a member draw, return of paid in capital, etc.
Diaphonous cape? John, it is a pleasure to have you on this board if only for such wonderful vocabulary, although your legal insights are much appreciated as well.
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BTW, Diaphanous is with an "a" (as long as we are correcting peoples spelling. From the latin/greek Phainein to show or see (literally to see through)
Diaphonos would mean something like "talking through" rather than "seeing through" from the the greek phonema a sound or utterance (from which we get "telephone"
I know, its picking nits, thats what being a classics major does to you I probably should have gone to law school instead..