Part I of this two-part series addressed requirements for maintaining an Indiana limited liability company, including the preservation of the corporate veil, that are imposed by statute or that may be imposed through the LLC’s operating agreement. Part II addresses recommended practices for maintaining Indiana LLCs that will help preserve the corporate veil (the liability shield that protects the assets of owners, or the assets of other related entities, from the LLC’s creditors) and are simply good business practices. Although the failure to follow one or more of the following recommendations will not necessary subject your LLC to veil-piercing, the following characteristics and practices are common to most well operated and maintained LLCs.
- Do not use the LLC for fraudulent or other improper purposes. Courts have very little patience with the owners of LLCs, corporations, or other limited liability forms of businesses who use them to perpetuate a fraud or to improperly hide assets from creditors, for example by transferring assets from one company to another in an attempt to hide or protect the assets from creditors of the first company. That is not to say that LLCs cannot be properly used for asset protection purposes under the correct circumstances, but once an LLC has incurred liability, transferring assets to another company or to the owners, especially if the LLC does not receive fair market value in exchange for the assets, will likely result in the company’s veil being pierced to enable its creditors to reach at least the transferred assets and perhaps the other assets of the recipient.
- Keep the LLC’s assets separate from the owner’s assets or the assets of other entities. Open bank accounts for the LLC that are separate from the owners’ accounts or accounts of related businesses. Deposit all of the LLC’s income into those accounts (not directly into the owners’); pay all of the LLC’s obligations from its own accounts; and pay none of the owners’ obligations or obligations of a related company from the LLC’s accounts. Generally, the LLC’s assets should be used only for purposes of the LLC’s business and not for the personal use of the owners. Do not pay yourself by writing checks from the LLC bank account to pay your personal obligations; pay yourself by writing a check from the business account, deposit it in your personal account, and then pay your personal obligations from your personal account.