Single Member LLC’s: Opening Exposure to Veil Piercing

A recent decision from the Wyoming Supreme Court highlights the dangers of having a single member LLC. Known as “veil piercing”, when an LLC is not properly protected, the parties to it can have their assets exposed to debt collectors and creditors.

Although the basic idea behind an LLC is protecting private assets from business debt collectors, more courts are generating cause for concern about exactly this reason because they, like the Wyoming Supreme Court, are finding just the opposite. This idea of limited liability is often a primary reason that an investor opts to choose the LLC format. Not wanting to expose his or her personal assets to risk is a critical reason that an investor takes that initial leap and confidently launched a business. No one would jump into the sometimes murky waters of business without calculating the cost of the investment in terms of potential profit and risks.

Thankfully, there are a few steps you can take under an experienced tax and planning attorney that will help limit the opportunities any creditors have to pierce the veil. Ensure that the legal requirements and all formalities are addressed by the LLC in addition to remaining compliant with the IRS. Avoid commingling of accounts where possible.