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  • Writer's pictureJennie Tannenbaum

Is Your LLC a Sham LLC or an actual LLC

Is having your business structured as an LLC sufficient to protect your personal assets from a lawsuit? Most people would probably say yes, but that is incorrect. It is not enough that your business is set up as an LLC. Why? Because the LLC must engage in conduct that demonstrates that it is in fact a LLC and not just in name only. Keep in mind that the LLC is a separate entity from the owner and must engage in conduct that reflects that. What are things you can do to ensure that the LLC is indeed operating as an LLC? Here are some: Open a bank account in the name of your LLC and do not comingle funds from your personal bank account. Don’t pay your personal expenses out of your LLC bank account. If you have used personal funds to pay for a business expense of the LLC, reimburse yourself from the LLC and keep a receipt of the business expense. How you sign checks, correspondence, and documents matters for the business. When signing checks, correspondence, and documents for the LLC, and it is a member managed LLC, sign it Jane Smith, Member. For a manager managed LLC, sign Jane Smith, Manager. Signing this way clarifies that one is not signing in their personal capacity as an individual, but rather is signing as an agent of the LLC. File the LLC annual report each year as required by the Secretary of State’s office along with the required annual filing fee. In MA the annual report is filed on or before the anniversary date of the LLC and the filing fee is $500. In MA failure to file two times results in an administrative dissolution of the LLC. There are late fees for filing late. Always, use the full and complete name of the LLC. For example, I use Simply Good Law PLLC not just Simply Good Law. Use the full and complete name of the LLC on all business transactions and correspondence. For example, on stationary, emails, website, business invoices, etc. Ensure that you have adequately funded your LLC with adequate capital and assets that will take care of the LLC expenses. Get adequate insurance coverage for your LLC. Determine if there are risks that your LLC should be insured against and get adequate coverage. Some judges have determined that a failure to get adequate insurance coverage results in the LLC owners being personally liable for the risks that were incurred. Failing to engage in such conduct which demonstrates clearly that the LLC and the owner are separate entities could result in the owner being personally responsible for the debts of the business. Additionally, you may have to pay a judgment from a lawsuit if your LLC is sued out of your personal assets for failing to engage in appropriate LLC acts and conduct.

If you want to learn more about managing your LLC in a way that is compliant with the law, follow me, Jennie Tannenbaum, on LinkedIn or follow Simply Good Law PLLC on Facebook for future posts about this subject.


PC: Artem Beliaikin



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