RENT Magazine Q3 '21

You've probably heard the term “alter ego” to refer to Clark Kent and Superman. They appear to be different, but are really one and the same. Business law recognizes this concept in that it will impose liability on the owners of a corporation or LLC that do not separate themselves from their businesses.

Most informed attorneys, CPAs, and advisors would probably agree that the applicable laws of Nevada, Wyoming, and Delaware do more to erect protective barriers between the assets of LLCs and corporations formed in those states and the personal assets of the owners of those entities than the comparable laws of any other states do. Even in Nevada, the personal assets of owners of LLCs and corporations formed in accordance with that state’s statutes, are not shielded from claims against the entity if a Plaintiff successfully demonstrates that: (1) the owner of the entity had personal knowledge of the existence of an unremedied condition that posed a risk of accident, injury, or illness to someone else, and/or (2) that the entity itself was reasonably regarded as just an “alter ego” of its owner(s).

group of people (fewer than 35) has the legal authority to control the activities of an LLC or corporation, then an adversary’s attorney will try to use that fact as a hammer to knock down the theoretical barrier that’s supposed to protect personal assets from business assets (and vice versa). This is known as “alter ego liability.” Laws and court decisions such as those cited above make it clear that for (1) the owners of single-member LLCs, (2) spouses who own LLCs and/or corporations together, and (3) family- members or other small groups of partners and friends who form corporations or LLCs to do business or invest together, the purported ability of those “closely-held” entities to deliver on the promise of protecting personal assets from the claims of business creditors (and vice versa) may well be resting on a bed of Swiss cheese, not granite. Bullet-Proof Asset Protection Real asset protection isn’t about making a property owner “suit-proof.” No advisor and no tool can promise that someone using a particular form of ownership, entity, instrument, or approach can never be sued. Instead, bullet-proof P A G E 6 9 |

A 2017 Nevada Supreme Court decision concluded the following:

"The statutes limiting personal liability of members and managers of an LLC for debts and obligations of the LLC are not intended to shield members or managers from liability for personal negligence..." [Page 7, emphasis added]

In other words, if an individual or a small

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