llcI understand that one benefit of having an LLC is to protect your personal assets.
Let’s pretend that the LLC has assets of $10,000. If someone sues and wins a judgement for, say, $10,000, the LLC has to pay that amount (right?).
But what if I, as the sole owner of the LLC, pay myself $2,500 a month for 3 months (prior to any lawsuit or judgement). My personal assets are now $7,500 higher and the LLCs assets are $2,500 (let’s assume the LLC has no income or liabilities).
With a similar judgement for $10,000, would the LLC only have to pay $2,500 (and then probably declare bankruptcy)? Or could the judgement reach into the $7,500 that had been paid to me as its owner? (Let’s assume the periodic payments would be considered reasonable.)
It depends on the facts.
What you describe is called “piercing the corporate veil.” This can be accomplished by a plaintiff. But they (and you) must follow the law.
Disclaimer: I am not giving you legal advice. I am not an attorney nor am I your attorney. So please do not follow anything I say here. I am only responding hypothetically. Please consult your own personal attorney for advice in your own personal case.
Given the scenario you describe, I would at least look at the following factors.
1. Fraudulent Transfer
The plaintiff could claim that you transferred the money after you committed the act that gave rise to the claim. And, therefore, the transfer was fraudulent. And the plaintiff could then pursue those funds potentially.
2. LLC status
If you did not take care to conduct your business properly, as an LLC should. Then you could be subject to a piercing action. Examples would include not separating your bank accounts from your personal. Signing documents in your own name and not the LLCs name. Even the form of the signature can be scrutinized. Also, not paying your annual state filing fees could cause your LLC status to be suspended which could subject you to a piercing action.
3. Personal Guaranty
Many creditors will not loan money to an LLC without getting a personal guarantee from one or more of the owners. This makes the owner liable for the debts should the LLC, for whatever reason, fail to pay.
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