Appendix I. How to Avoid Veil-Piercing

AuthorJeffrey Robert Matsen
ProfessionFounder and managing partner of Matsen Voorhees Mintz LLP
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.

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