Appendix I. How to Avoid Veil-Piercing

• Author: Jeffrey Robert Matsen
• Profession: Founder and managing partner of Matsen Voorhees Mintz LLP
• Pages: 111-113

111

APPENDIX

I

How to Avoid Veil-Piercing

One of the principal legal benefits for business owners and real estate investors in using LLCs to conduct

their businesses and hold their real estate is the limited liability shield provided by LLC statutes to LLC

members and managers. This shield protects the personal assets of these members and managers (e.g.,

their homes and savings) from being at risk for debts of the LLC and the business assets and real estate

the LLC owns.

However, in certain circumstances, the courts may “pierce the veil” of an LLC—that is, they may dis-

regard this shield and may hold members and/or Managers personally liability for claims against the LLC.

Thus, it is critically important for LLC managers (“manager” refers both to the managers of the

Manager-managed LLCs and to the members of Member-managed LLCs) to take all reasonable measures

to prevent LLC veil-piercing. The principal such measures are outlined below:

1. LLC Managers Should Not Use the LLC to Commit Fraud

or Other Serious Misconduct

The courts are unlikely to pierce an LLC’s veil unless the members or Manager of the LLC use it to commit

fraud or other serious misconduct and then seek to rely on their limited liability shield to avoid personal

liability for this misconduct. Thus, to avoid veil-piercing (and, obviously, for many other strong legal and

ethical reasons), LLC members and managers should avoid all such misconduct.