Mistakes of single-member LLCs.

By: Esqueda Law PLLC

There are inherent mistakes that are often made by nearly every single-member LLCs. 

My name is Liza Esqueda and am the founding attorney of Esqueda Law, PLLC.

With a single-member LLC, we call is a single member because the person that owns the LLC is called a member. So that’s different than like a corporation where the person who owns the corporation is a shareholder so you might own stock in a corporation, for example. But when you own an LLC what you own is a membership interest and if you were the only person that owns the LLC you are the sole member for the single member owner of that LLC.

So single-member LLC is our different from multimember LLC where there will be a number of different owners and that’s a whole different beast.Â

When you have a single-member LLC, the reason is that they want some level of liability protection. In other words, if their business does something that causes them to get sued, an LLC makes sure that the person is suing the business and not coming after the owner.

When someone is able to sue the LLC AND then go through and sue the owners of the business for their personal assets that are called piercing the corporate veil. You do not want that to happen and therefore primary ways you can avoid the risk.

First of all, you want to make sure that you follow all the appropriate proper legal formalities that are required to operate can own an LLC. So this is going to be the same for single-member LLC that you would do if there were multiple owners it was a multi-member LLC.

You need to have an operating agreement, an agreement between you and the LLC to make sure the LLC is run. Salary, purchases, types of business you conduct, business location, how to wind up and dissolve the LLC. Is this necessary? Basically, it is a contract with yourself. Yes, it is necessary! If you want to protect yourself against liability you will need an operating agreement.

Meeting minutes. Might sound silly to have minutes on meetings when you are the only member. However, its necessary. It could be as simple as jotting down minutes we’re guarding the decision to purchase business insurance with a specific company. Write down what the options were, the details of the insurance policy, price, company, etc. And what you decided to choose this option. Also, notate that you will be paying for the insurance out of company funds. Its as easy as that.

Accounting have good records so that when it comes time to do your taxes you have clear records of what was done for the business financially.

Bank Accounts – the entity and the owner cannot have the same bank accounts. In order to keep liability separate, you must treat the business as exactly that, as a business. You need to have a separate business bank account, this is a checking account, business Credit card. And you cannot call mingle funds. The moment you start commingling funds and accounts are the moment that the corporate veil can be pierced.

Make sure your business is adequately capitalized You need ort to keep money in the business to run the business. Number two number three is to avoid commingling personal and business fun to be already cut it I am having an undercapitalized business is an invitation for someone to Pierce the corporate veil. They can go after your personal funds to pay for Business expenses that you owe.

Act as the owner of the LLC. Anytime that you asked in the role of the LLC you need to sign documentation in that role. For example, you need to sign leases, Bank documents as Mary Jane, Owner (or member) of ABC LOC. Rather than Mary Jane.

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