In today’s modern business world, the majority of businesses are owned directly by Limited Liability Company’s, or LLC. The LLC is then owned by shareholders, founders and other investors in the company. There are a variety of reasons why someone would structure their business as a LLC.
Advantages of Structuring a Business as a LLC
“When forming an organization, forming a[n] LLC is very common for businesses of all sizes. ”
The main advantage of forming a LLC is that the liability that the business owners take on is limited to the amount of capital that they put into the organization.
This structure helps to keep business assets separate from personal assets, but also provides a shield and protection for the business owners if something happens to go wrong. It can also make it easier to restructure an organization during downtime. While LLC structures are designed to protect business owners, in some liability claims it is possible that the shareholders of the company could take on additional liability risk.
Piercing the Corporate Veil
While LLCs do continue to provide some protection to business owners, there continue to be ways that the structure can be defeated through a legal claim. The process of making shareholders of a LLC liable for a claim is called “piercing the corporate vein”. If a court system chooses to pierce the corporate veil, it will could result in the shareholders facing serious civil liability claims.
When Will the Corporate Vein be Pierced
Overall, court systems across the country will aim to ensure that the rights of a LLC are properly protected. However, there are situations when they may decide to go against this standard approach. If there have been claims of serious misconduct, fraud or other concerns, the court system may find the shareholders of the organization liable. The way these scenarios are handled can vary greatly from one state to the next.
How to Pursue a Claim Against a Shareholder of a LLC
If you feel that you have incurred a loss due to the actions of a company, seeking out restitution could be a great option. The initial way you will handle this is by filing a claim against the LLC that owns the business. However, even if you were to win a large claim, it could simply force the company into bankruptcy, at which point your ability to collect will be minimal. If this is the case for you, it would be a good idea to speak with an attorney to discuss your legal options. A business litigation attorney can provide a variety of services if you do decide to pursue action against the shareholders of the LLC.
Provide Assessment and Consultation
The first thing the attorney will do if you try to pierce the corporate veil of a LLC is to provide you with a full assessment and consultation. The attorney will be able to do this by reviewing the structure of the LLC, which will include assessing the underlying ownership structure. Based on certain structures, there are situations when piercing the corporate veil will be easier than others. They will then compare this to state law and review your claim to determine if your claim to go after the shareholders will be successful. Based on this assessment, all parties can decide whether or not they should move forward.
Move Forward with Claim
If you do decide to pursue a legal claim against the shareholders of the LLC, the business litigation attorneys you hire will handle the filing process for you. The majority of the time, a claim filed against the principals of the LLC will be handled and negotiated outside of the courtroom. In fact, many individuals will carry umbrella insurance policies to protect against this risk. However, if a settlement is not reached, the next step will be to file a lawsuit. If your claim gets to this point, your case will be presented in front of the judge that will make a decision based on state law, the structure of the LLC and the merits of your claim.