<div class="bbWrapper"><blockquote data-attributes="member: 112" data-quote="Sehcill" data-source="post: 477658"
class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch">
<div class="bbCodeBlock-title">
<a href="/community/goto/post?id=477658"
class="bbCodeBlock-sourceJump"
rel="nofollow"
data-xf-click="attribution"
data-content-selector="#post-477658">Sehcill said:</a>
</div>
<div class="bbCodeBlock-content">
<div class="bbCodeBlock-expandContent js-expandContent ">
If there's any chance at all that a customer (or their children) can hurt themselves in any way at all with your product, if you have a single member LLC (or any other corporate entity for that matter) at least they can't come after your personal assets.
</div>
<div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div>
</div>
</blockquote>This is not entirely true, and is likely to be completely wrong for most newbies.<br />
<br />
<span style="font-size: 15px"><b>When Courts Will Pierce the Corporate Veil</b></span><br />
Courts might pierce the corporate veil and impose personal liability on officers, directors, shareholders, or members when all of the following are true.<br />
<br />
<ul>
<li data-xf-list-type="ul"><b>There is no real separation between the company and its owners.</b> If the owners fail to maintain a formal legal separation between their business and their personal financial affairs, a court could find that the corporation or LLC is really just a sham (the owners' alter ego) and that the owners are personally operating the business as if the corporation or LLC didn't exist. For instance, if the owner pays personal bills from the business checking account or ignores the legal formalities that a corporation or LLC must follow (for example, by making important corporate or LLC decisions without recording them in minutes of a meeting), a court could decide that the owner isn't entitled to the limited liability that the corporate business structure would ordinarily provide.</li>
<li data-xf-list-type="ul"><b>The company's actions were wrongful or fraudulent.</b> If the owner(s) recklessly borrowed and lost money, made business deals knowing the business couldn't pay the invoices, or otherwise acted recklessly or dishonestly, a court could find financial fraud was perpetrated and that the limited liability protection shouldn't apply.</li>
<li data-xf-list-type="ul"><b>The company's creditors suffered an unjust cost.</b> If someone who did business with the company is left with unpaid bills or an unpaid court judgment and the above factors are present, a court will try to correct this unfairness by piercing the veil.</li>
</ul><span style="font-size: 15px"><b>Factors Courts Consider in Piercing the Corporate Veil</b></span><br />
The most common factors that courts consider in determining whether to pierce the corporate veil are:<br />
<br />
<ul>
<li data-xf-list-type="ul">whether the corporation or LLC engaged in fraudulent behavior</li>
<li data-xf-list-type="ul">whether the corporation or LLC failed to follow corporate formalities</li>
<li data-xf-list-type="ul">whether the corporation or LLC was inadequately capitalized (if the corporation never had enough funds to operate, it was not really a separate entity that could stand on its own), and</li>
<li data-xf-list-type="ul">whether one person or a small group of closely related people were in complete control of the corporation or LLC.</li>
</ul><a href="http://www.nolo.com/legal-encyclopedia/personal-liability-piercing-corporate-veil-33006.html" target="_blank" class="link link--external" rel="noopener">http://www.nolo.com/legal-encyclopedia/personal-liability-piercing-corporate-veil-33006.html</a><br />
<br />
Operating a properly managed LLC is no joke if your goal is to preserve the "corporate veil" and enjoy asset protection. There is a substantial, on going cost in both time (paperwork, "meetings", etc) and money to mantain an LLC. And if you screw it up, the protection you thought would be there when someone's kid gets hurt by your product goes out the window. Just because it only takes 10 minutes on the state corporate page to register doesn't mean it's a trivial matter.</div>
