LLCS : A SOL I D ASSET PROTECTI ON PLAN OR JUST SWI SS CHEESE? In theory, the so-called “corporate shield” is supposed to erect a protective wall between your personal assets and what you own in a corporation in the event you get sued. The truth, however, is that when lawsuits turn into court dates, unless you share ownership of your properties with 34 other people or have taken your company public, that protection plan has a lot of holes in it.
If you’re starting to yawn already, grab a cup of coffee and keep reading. Just a quick warning: prepare yourself for a little cognitive dissonance. There’s a good chance that not everything you’ve been told about LLCs and corporations is true. For example, a hypothetical tenant’s guest is bit by another tenant’s dog. Can the lawyer representing the victim prove you knew there was an unleashed dog on your property? Even if you can prove you sent certified notices to the dog owner demanding that the dog be restrained, your foreknowledge of the unremedied risk could be all it takes to empty your business pockets – and your personal pockets.
This same issue worked against the owners of a Nevada LLC that owned a water park. Upon appeal in 2017, the Nevada Supreme Court allowed the Plaintiffs to sue those Members personally because the Members knew about an injury risk and didn’t do enough in the Court’s view to fix it. And, if you think through what you read here long and hard enough, you’ll understand why that risk could be just as real in your world if you own your property in a series of anonymous LLCs as it would be if you owned the property in your own name instead. All it takes is a hungry lawyer and the promise they’ll earn 40% of the
settlement if they win.
Consider This: According to The Wake Forest Law Review :
The corporate veil is pierced
in 39.3% of state court cases.
The corporate veil is pierced in 41.4% of federal court cases. "The corporate veil is the elephant in the room." - Hastings Business Law Journal
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