Operating LLC used as asset protection

[Lee Liberman]

Does this structure add any protection?

Properties are purchased in my and my partners individual names (tenants in common) for the purpose of renting.

We use an LLC (owned by both of us) to move money around for income/expenses of the process of renting these properties. If we have a property manager, they will send net rent checks to this account and we pay would pay them out of this account. The property management agreement is between the LLC and the property manager. The entity is used for all aspects of the business.

Mortgages are in the personal names of me and my partner (no LLC).

Insurance is maintained on the properties themselves and with the LLC as a named insured.

If a lawsuit were to occur, would we be personally liable? What if we accidentally at one point use our personal checking account to pay for something as opposed to running it through the operating LLC? Does that pierce the vail of the LLC if it provided any protection to begin with.

Please respond only if you are a lawyer or consulted a lawyer in thinking through your structure and feel confident in the response.

Thanks,

[Keith Jacobson]

As a former personal injury attorney, I can tell you that if your name is in any way related to the property (on the deed, rent checks etc..), you will be named as a Defendant.  Plaintiffs don't have any information early on as to your business structure, so they will "shotgun" and name everyone who could potentially be involved to make sure they file against the correct entity before the statute of limitations expires.

I am not YOUR lawyer, but it seems to me your bigger problem is that your insurance policy does not have you (the property owner) as a named insured.  Insurance companies margins are income (premiums and investments with premiums) - expenses (claims).  If they can avoid paying a claim, they will.  They have no loyalty to you, so if they can deny coverage because you weren't named in the policy, they will.

Piercing the corporate veil is a complicated topic, and this is a long reply already. The short answer is if you "disregard the corporate form" (i.e. don't treat the LLC as it's own "person") they could potentially ignore the corporate veil. One "accidental" payment probably wouldn't do it, but a bunch of them would become a problem.