LLC Owners: Stay in your sandbox- do not use the Company’s assets as your playground!

Piercing the Corporate Veil…

Owners of LLCs are known as “members”. Generally, a member of a Michigan LLC is not liable for the acts, debts or obligations of the Company unless otherwise provided by law or an operating agreement. The Company acts as a shield or a “veil” to protect the members. This is great news and one of the principal benefits to forming a Company. That said, this shield or veil is not limitless and does not give LLC members an automatic free pass in EVERY situation. Michigan courts- as is the case with a corporation- will “pierce the veil” of an LLC, go around that shield of protection and hold members personally liable for the LLC’s acts, debts or obligations to prevent fraud or injustice.

One of the situations where a court may find that the veil should be pierced is if a member is merely using the assets of the Company as assets of his or her own. A court may pierce the veil if it can be shown that there is an improper separation of the Company’s funds from the member’s personal funds. This includes commingling of funds between separate entities or an unauthorized diversion of corporate funds or assets for personal use. Single member LLCs and multi-member LLCs alike must be careful with this type of activity. It can be dangerous! Don’t jeopardize your protection! Questions? Concerns? Contact us today!

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