Protect Your ASS-ets

So, you filed a Certificate of Organization for your LLC.  Great!  Your work has just begun!

As an entrepreneur or small business owner, you have the drive and ambition to turn your dreams into reality.  But before diving headfirst into the business world, it is crucial to understand the importance of entity formation.  This article highlights the true value of forming a legal entity for your business and how it can safeguard your assets and propel you toward long-term success.

Why Entity Formation Matters

Protecting Your Assets: Forming a legal entity such as an LLC is essential to shield your personal assets from business liabilities.  With the right entity and by adhering to corporate formalities, you can say goodbye to sleepless nights worrying about losing everything in case of a lawsuit or financial downturn.

Building Credibility:  Establishing a formal business entity adds credibility and professionalism to your brand.  Gain the trust of clients, partners, and investors who value a structured and legally compliant organization.

Tax Benefits and Flexibility:  Forming a business does provide potential tax advantages and flexibility.  Working with your accountant to optimize your tax strategy, maximize deductions, and navigate the ever-changing tax landscape more effectively is important.

The Road to LLC Formation

Choosing the Right Entity:  While various business entity options exist, our current focus is on the most flexible option for most business owners, the Limited Liability Company (LLC).  Understand the unique benefits and characteristics that make the LLC a popular choice for entrepreneurs and small business owners.

Filing Made Easy:  It is easy to file formation documents online. Most states offer same-day or quicker service.

Professional Assistance:  Filing is just the start, though. For more information, click here.

True Protection Beyond Filing

Maintaining Compliance:  You must keep your business in good standing to preserve the protections offered by your legal entity. To do so, you must keep a minimum level of compliance, such as having regular meetings, having meeting minutes, filing all necessary tax documents, and having adequate insurance coverage.

Contracts and Agreements:  Using well-drafted contracts and agreements will solidify relationships with clients, suppliers, and partners.  While the entity you select protects your personal assets, your contracts protect your business entity. The best part is that contracts protect your customers, too, because they set out the terms of your deal and potential remedies if a breach occurs.

By forming a legal entity such as an LLC, you can protect your assets, enhance your credibility, and optimize your tax strategy.

Remember, true protection goes beyond filing paperwork – it involves ongoing compliance and safeguarding your intellectual property.  Start building a solid foundation for your business today and pave the way for a prosperous and secure future.

*Disclaimer: this article is for informational purposes only. It is not providing legal advice. It does not create an attorney-client relationship.

The 1,2,3s of Asset Protection from Pennsylvania LLCs

To say there is an abundance of information online about Limited Liability Companies (LLC) is an understatement. With such great resources, why do many owner-operators have common problems? Whether going it alone or with a team by your side, it is important not to ever lose focus of the main value of an LLC: personal asset protection. That protection lasts only if the corporate veil stays intact. 

Now, wait a second. Who said anything about an old-timey word for curtains? What do curtains have to do with business anyway? 

Simple. A veil, or curtain, supplies concealment and protection from elements. The same concept is present to protect an LLC owner-operator's assets, at least to the extent that they follow corporate formalities. The corporate veil concept is the personal asset protection mechanism. While it is strong, it is not impenetrable. 

Piercing the corporate veil is a broader concept than many realize. Plus, in Pennsylvania, there is not a clear set of factors to define when a party can pierce the corporate veil. In Mortimer v. McCool, 255 A.3d 261 (Pa. 2021), the PA Supreme Court chose an “equitable powers” approach. This approach allows PA courts of all levels to evaluate the actions of owners to decide whether veil piercing is proper. This approach avoids setting out predictable factors and makes it tougher for owner-operators to avoid any specific conduct that could cost them the protection of their corporate veil. 

So while you cannot eliminate the odds that someone could pierce your LLC’s veil, you can do things to mitigate your risk. The three pillars of protection are 1. collect case law, 2. maintain formalities, and 3. capital control. While the first is out of an owner-operator’s control, there is no denying that the other two pillars are not only within your control: they are also best business practices for LLCs. 

Maintaining corporate formalities is easy. Keep all business and personal assets separate. And proper levels of insurance for your business. And keep accurate records. All things a healthy business does daily. Capital control for an LLC is an important sub-set of corporate formalities. It is important to adequately fund your LLC and to avoid treating it like a personal piggy bank. Again, both practices a healthy business would adopt. So where does that leave LLC owner-operators? As case law collectors. 

In Mortimer, the Court adopts a “geological accumulation” of case law to guide their equitable powers approach for veil piercing. The lack of precedent is unsettling. The decision makes keeping a watchful eye on veil piercing cases part of the path to understanding veil piercing, which in turn leads to a collection of precedent. As the number of cases grows, more elaborate guidance will evolve. In the meantime, follow best business practices. Take action to mitigate the potential of veil piercing by running a healthy business.

If you have questions about your business and asset protection, give us a call at 724-550-6970.

*Disclaimer: this article is for informational purposes only. It is not providing legal advice. It does not create an attorney-client relationship.