Single vs. Multi Member LLC

[Matthew B.]

I often hear that you should always have at least 2 members of your LLC, even if one member only owns 1%. It supposedly makes it more difficult to pierce the corporate veil in the event of a lawsuit. Is there any truth to this?

[Account Closed]

Three points:

1.)  Adding a second member to a SMLLC will not make it more difficult to "pierce the veil" in the event of a lawsuit.  If the Court finds there is a basis for doing so, it will.  The process is centered on behavior, structure can be argued, but only as mitigation.

2.)  A reading of the few opinions that show a Court's reluctance to "pierce the veil" of a MMLLC reveal that the Judge did not want to order the assets sold when only one member was responsible for the behavior presented in the hearing, but the other member, or members, would be suffering the same consequences.

3.) Adding a second member to the LLC just for the purpose of putting the Court in this position, especially if the behavior appears premeditated or outrageous, will put you in a world of hurt, in front of a Judge who can do just about anything he wants to you.

LLCs are becoming very good business entities, as more Appeals Courts are applying previous law established regarding corporations, partnerships, etc. as also applying to LLCs.  The uncertainties are disappearing.

So there are no tricks.  There are some nuances, and some creative structuring, but mostly we are all playing by the same rules.

Whatever you do, Good Luck.

Michael Lantrip