Forming a limited liability company (LLC) offers benefits, as it protects your family home and personal savings from business debts or lawsuits. In the legal landscape, this protection is known as the corporate veil, but it is not impenetrable. Here are ways you can lose your corporate veil in Texas.
Committing fraud for personal benefit
You can lose the corporate veil if you fail to pay a vendor or a loan, and the claimant proves you used the business to perpetrate an actual fraud for your direct personal benefit.
Evading legal obligations
The court may pierce the corporate veil if it finds that your LLC stands as a tool to break the law. For instance, you are using a new LLC or corporation to transfer all assets out of a company just before a lawsuit is filed.
How Texas law offers protection for owners
In many states, failing to conduct corporate formalities can mean losing protection. However, in Texas, this is generally not enough on its own. The courts cannot pierce the veil just because you failed to hold meetings or maintain business records.
Texas law recognizes that small business owners often forget to write down every meeting, and it protects them from losing their personal assets because of those administrative errors.
Protect your business with a solid strategy
Running an LLC comes with responsibilities that require attention. To maintain your corporate veil, you need to have a strategy, including creating company bylaws (or a company agreement), policies for handling business finances and ensuring enough capitalization. Because every business has unique risks, it is a smart move to have a business law attorney review your operating procedures.
