Forming an LLC can provide limited liability protection if set up and maintained properly. Here are some critical formalities to ensure this protection:

  • Ownership: Transfer the title of the property to the LLC.
  • Maintaining Separate Finances: Keep the LLC’s finances separate from personal finances.
  • Following Corporate Formalities: Hold regular meetings, keep minutes, and adhere to other legal formalities.
  • Adequate Funding: Ensure the LLC has sufficient funds to cover its liabilities and operating expenses.
  • Insurance: Obtain appropriate insurance coverage, such as commercial liability insurance, to protect against potential lawsuits.
  • Property Management: Regularly maintain the property to adhere to safety standards and local regulations.

Simply placing a property into an LLC without maintaining these necessary formalities can be dangerous. In the event of an accident on the property, both the LLC and its members could be named in a lawsuit. The court may determine that the LLC is an alter ego of its member and decide to pierce the corporate veil, thereby exposing personal assets to liability.

There are many cases where courts have ruled that plaintiffs are personally liable for corporate liabilities. For example, in Wolfe v. United States, the court identified factors indicating that the corporation and its controlling shareholder are essentially the same. While each case is different, you can use this case to evaluate your own situation.