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September 16, 2016

Single-Member LLC Veil Piercing Protection

I am in the process of filing to form my LLC company. I was going to file for it to be treated as a single-member LLC, but how real is the possibility of veil-piercing? Can this be solved by filing for the LLC to be treated as a Corporation instead?

– Sergio, Texas

Answer

I am not aware of any caselaw where a judge has held that the mere fact of being a single member LLC alone was a factor in deciding to pierce the corporate veil. There is some caselaw out there on the issue of reverse veil piercing. In reverse veil piercing, the single member has personal debts and tries to prevent his personal creditors from getting at the LLC’s assets.

The method of taxation (corporate vs. partnership), should have no bearing on veil piercing.

Veil piercing is an extraordinary remedy, which will only be used when there is clear indication of fraud by the owner and corporation.

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