How to Avoid “Piercing the Corporate Veil” (Don’t Lose Your House)
You formed an LLC to protect your personal savings from lawsuits. But that protection is not magic. If you treat your business bank account like a personal piggy bank, a judge can shatter your shield in seconds.
The Shield is Made of Glass
“Piercing the Corporate Veil” is fancy lawyer talk for: “The LLC is a sham, so let’s take the owner’s personal money.”
| Behavior | Legal Consequence | Verdict |
|---|---|---|
| Separate Accounts | LLC Liability Only | Safe |
| Mixing Money | Personal Liability | Pierced |
| Signing as Self | Personal Liability | Pierced |
| No Capital | Fraud Indication | Risk |
Example: Using the LLC debit card to pay for Netflix, or depositing a client check into your personal checking account. Never do this.
| Mistake | Severity |
|---|---|
| Forgot Minutes | Bad |
| Used Biz Card for Rent | Fatal |
5 Rules to Stay Safe
You don’t need a lawyer to maintain your veil. You just need discipline.
1. The Golden Wall (Bank Accounts)
Open a business checking account on Day 1.
Rule: Money only moves between Business and Personal via a formal “Distribution” (transfer). Never pay personal bills directly from the business.
2. Sign Your Name Correctly
Never just sign “John Doe.” You are not John Doe; you are an agent of the company.
Correct: “John Doe, Member/Manager, XYZ LLC”
If you sign personally, you are personally guaranteeing the contract.
3. Keep “Minutes” (Yes, even you)
“But I’m the only employee!” It doesn’t matter. Once a year, sit down, write a one-page document titled “Annual Meeting Minutes,” and sign it.
“Resolved: The company made a profit. We elected John Doe as Manager.” File it in a drawer. This proves you respect corporate formalities.
4. Capitalize Your Business
You can’t start a dangerous demolition company with $5 in the bank. Courts call this “Undercapitalization.” Put enough money in to cover reasonable expenses and insurance.
5. Get an EIN
Don’t use your Social Security Number for business. Get a free EIN from the IRS and use that for everything. It creates a data separation.
Pro Tip: The “Distribution” Method
“So how do I buy groceries if I can’t use the business card?”
The 2-Step Process
Step 2: Use your Personal Card to buy groceries.
Result: The money is yours, but the paper trail is clean.