Thinking About Forming a Single Member LLC? Watch this First!

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hey there gang Jim are here again from

Hawthorne law and today I want to talk

about single member LLC's I want to talk

to you about what they are I want to

talk to you about how to avoid the risks

that that you could get sued and your

personal assets could get reached by

creditors who might be suing your

company if you are a single member or

LLC so that's kind of what I want to

talk to you about today let's start with

what an LLC is an LLC is a limited

liability company and a single-member

LLC is basically an LLC that only has

one member and that would typically be

you I would suppose alternatively you

could have what's called a multi-member

LLC which is where you and your buddies

get together and decide that you want to

form an LLC and and that's cool and you

can do that too and that would be a

multi-member LLC the biggest reason that

many people will form an LLC especially

if they're doing an online business is

because they want to avoid personal

liability so if you have a blog out

there and you want to create an LLC for

your blog the reason you would do that

is because you know if you're giving

advice on your blog or your you're

telling people to do certain things or

you're selling products or whatever you

know if somebody gets hurt or injured or

damaged based on your advice or based on

the products that you sold to them then

potentially they could sue you and what

you want to do is you want to keep up

this what's called a corporate veil so

that they can't reach your personal

assets and the way you do that is by

forming an LLC or you can also form a

corporation but for purposes of today

we're going to really be focusing on the

LLC component so basically the way this

works is when you form an LLC there's a

there's a legal doctrine it's called the

corporate veil that's what you get so

basically you have this big think of it

as a dome and think you're your home or

your your your personal assets are all

underneath this dome in what's called

this corporate veil so they're covered

by this corporate veil and if a creditor

or somebody who is injured by your

business or something that you did while

you were in the business if they wanted

to get at the assets they're in this

corporate veil then they can do what's

called piercing the corporate veil and

there's a number of ways they can do

that and that's what I want to talk

about here today okay so one of the most


in ways that somebody can pierce the

corporate veil if you have a business is

they can use what's called the alter-ego

doctrine in the way the way that works

is basically what they're telling the

court if they were to sue you is that

there really is no difference between

you and the LLC and if that's the case

then they can sue you and they can reach

all your personal assets to satisfy any

judgment that may they might get against

on you or your business you know with a

single-member LLC there's a lot more

risk that something like that can happen

and if you have like a multi-member LLC

for example with you and your partner's

because the courts don't really want to

pierce the corporate veil if you have

partners as well because they don't want

to make everyone liable for you know

something that you [ __ ] up basically

is the way that works so so there's a

lot of things that that you can do to

protect and avoid the risk that somebody

can pierce the corporate veil for your

LLC I just want to go over some of them

here today so the first thing the first

thing you're going to want to do is is

basically you want to act as if your

business as if you have more members

than just yourself you don't want to act

like it's just you and your business

because that's a surefire way for

somebody come in and pierce the

corporate veil and get it you're good at

your ship basically so you want to act

as if you are operating a business

that's bigger than yourself that has

other partners that has other owners

that you have to report to and and

that's the cleanest way to do that and

the way you would do that number one the

biggest way is to have a valid operating

agreement in place now I know what

you're thinking why the hell do I need

an operating agreement if it's just me I

know what I'm doing I don't even have an

agreement with myself to tell myself how

to do everything with my business but in

fact you do have to have a valid

operating agreement because you don't

have a valid operating agreement then

there's a good chance somebody could

come in and pierce your corporate veil

if you were to get sued and so what an

operating agreement will do if I can

talk today is basically it will outline

what your responsibilities are at all on

how you get paid ill outline the

guidelines for what the different

members will have to do within the

business and their responsibilities

it'll act it'll talk about what would

happen if somebody decided to leave the


and if you don't have something like

this in then it's a it's a great way for

somebody to go at your business and you

don't want that the next thing is

besides having the operating agreement

you have to actually follow the

operating agreement so an operating

agreement isn't worth the paper it's

written on if a plaintiff can go in the

court and be like yeah this is a great

operating agreement now have you been

following it and if you can't say that

you have and you can't show that you've

been following the operating agreement

then you're pretty much up [ __ ] creek

and so you don't want that either along

those lines you want to have adequate

minutes and you want to follow all the

corporate formalities for your business

so that means if you make a decision in

your business then you want to make sure

you hold a shareholder or a member

meeting to go over what that decision is

going to be and why you decide to do it

so for example when I started Hawthorn

law the safe practice for me because

it's part of my bigger law firm business

is to have a meeting and say hey I want

to start Hawthorn law what do you think

about that and I would tell myself well

I think that's a great idea why don't

you do that then we write that down we'd

sign it and we'd be good to go and put

that in the file and then if anyone were

to ever ask me about that then yes I

have a record that there was a

shareholder meeting and then we took

care of that now I'm not an LLC but

that's beside the point the next thing

you want to make sure you do is you want

to make sure that your business is

adequately capitalized what a lot of

people will do is they might think well

I want to keep my money out of the

business and into my personal hands

because that way if a creditor would

ever sue the business then there's not

going to be any cash from the yet well

that's not necessarily a smart move you

want to make sure there is enough

business in your is enough cash in your

business to to take care of the

day-to-day operations of the business

and failure to do that could be a way

that somebody can go ahead and pierce

the corporate veil and along those lines

and this is probably one of the biggest

ways that people show that they're no

separate from the business is you need

to make sure you keep separate bank

accounts for the business and for

yourself personally a great book that

talks about this is called profit first

by Mike Micallef you want to check that

out on put a link below but but

generally speaking you know so you want

to make sure that you have separate

business accounts and separate personal

accounts and you want to make sure you

pay yourself on a regular basis and you

want to make sure that

if if the business is not have enough

money and you don't want to go paying

business bills out of your personal

account okay you want to write a check

to the business deposit into the

business and then pay the bill out of

the business account if you don't have

enough money

always always always make sure you pay

all the business expenses out of the

business account pay all your personal

expenses out of your personal account

you don't want to be going back and

forth and commingling funds in that way

that that's going to get you in big

trouble and not only if someone will sue

you but also potentially with the IRS so

you want to be careful about that

another way you can make sure that

you're not getting in trouble running

afoul of any rules and not getting in

trouble with the courts if you were to

get sued is to make sure that when you

enter into contracts you enter into

those contracts as the LLC so the way

you're going to do that is you're going

to put on the contract the name of the

LLC and then you're going to put

underneath it by your name as owner or

president or whatever it is you're going

to call yourself of the LLC that's how

you're going to do that and that way

there's no risk that you're entering in

the contracts on a personal level as

opposed to the business level another

thing I want to talk about is insurance

if you are in a business where you think

it's likely that you could get sued you

want to make sure that your LLC purchase

adequate insurance to protect you so

even if you're following all the

corporate formalities you've got an

operating agreement in place you're

signing your contracts right you're not

coming Ling funds you still want to make

sure that you have some business

insurance in place just in case the

worst case scenario would happen so you

do everything right and the judge said

you know what that's fine but I still am

finding that there's some personal

liability here so I'm going to let the

the plaintiff pierce the corporate veil

but if you've got that insurance in

place maybe you can cover all the

damages with that so you want to make

sure you have insurance in place so

that's all I got for today I'm going to

be doing a lot of videos about LLC's

because I've been doing some research

and I know that that's what you guys

want to hear more about so stay tuned

for the next video remember my name is

Jim Hart with Hawthorne law I am

licensed in Florida and North Carolina

if you have a

a physical business at some place I

can't give you legal advice unless

you're in Florida or North Carolina if

you are an online business I can help

you out in terms of online business

principles and internet laws and things

of that sort so feel free to I've got my

name and phone number here if you have

any questions feel free to give us a

call we could set up a call to talk

about your particular issues hopefully

you find this helpful leave a comment

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you're hearing and seeing and I look

forward to seeing you next time thanks

folks have