How to ensure the "corporate veil" is not pierced in a s-llc?

General Landlording & Rental Properties
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How to ensure the "corporate veil" is not pierced in a s-llc?

Adam S.
Falls Church, VA · Member since 2016 · 9 posts · 0 votes

Hey everyone,

I'm still undecided about whether or not to do an LLC for a single commercial unit I own and rent out (no loan). A family friend is an attorney (real estate isn't his primary, but he dabbles in it) recommends that I form an LLC. He says in Virginia an single member LLC is treated the same as a multi-member LLC, but I'm reading about people "piercing the corporate veil." Having an LLC would definitely increase costs... (not sure how much exactly, but I know that things like insurance will be more expensive).

I was reading from some posts here that the "corporate veil can be pierced" if an LLC is not treated as a separate entity, such as having an operating agreement, holding meetings, ect. However, if you're a single member LLC you wouldn't need an operating agreement and meetings right? So, what can you do as a single member in a LLC to ensure that it's treated as a separate entity.

Eitherway, I would get umbrella insurance with as much insurance as possible, so I'm not sure if the headache is worth it. The only main reason I think it would be to have my name not connected easily to the LLC, so less headaches from tenants.

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David Miller
Attorney · Durham, NC · Member since 2016 · 224 posts · 126 votes
10y
Getting a LLC is about protecting your downside. The liability protection of shielding your personal assets is worth the nominal fees associated with setting it up and maintaining it. A single member LLC is a "disregarded entity" for tax purposes (meaning you do not need a Form 1065 or schedule K-1 for your tax returns) but you will need an operating agreement, to keep annual minutes and to setup separate bank accounts in the LLC's name. The OA is important because it provides for what happens if you die or become disabled or, if married, divorce....it also helps ensure the LLC is separate from you and not an"alter ego" of you (which would allow for a piercing of he corporate veil).
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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    10y

    That seems like a lot of trouble and expense to hide your identity from a tenant. What is it about the type of tenants your are renting to that you are so afraid of. Will the property be rented for illegal activities.

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  • Adam S.
    OP
    Falls Church, VA · Member since 2016 · 9 posts · 0 votes
    10y

    No, definitely nothing illegal! Just whenever I'm doing research it seems like people find hiding their name the smart thing to do. I'm not exactly sure why though... Do you have any recommendations on the LLC vs No LLC (both with insurance)>

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  • David Miller
    Attorney · Durham, NC · Member since 2016 · 224 posts · 126 votes
    10y
    Getting a LLC is about protecting your downside. The liability protection of shielding your personal assets is worth the nominal fees associated with setting it up and maintaining it. A single member LLC is a "disregarded entity" for tax purposes (meaning you do not need a Form 1065 or schedule K-1 for your tax returns) but you will need an operating agreement, to keep annual minutes and to setup separate bank accounts in the LLC's name. The OA is important because it provides for what happens if you die or become disabled or, if married, divorce....it also helps ensure the LLC is separate from you and not an"alter ego" of you (which would allow for a piercing of he corporate veil).
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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    10y

    Setting up a LLC is primarily because the American legal system is such that many lawyers make their primary income off of filing frivolous law suits. Being in Canada we do not need to hide we simply have insurance to protect our assets. However it is my understanding that a law suite can name directors of a LLC and that way go after your personal assets anyway. I really do not know but my advice would be to rely on insurance.

    As far as hiding your identity from tenants that is simple paranoia. It's imposible to hide in this day and age.

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