Let me start with the necessary disclaimers: As you know, this is not
legal advice. Although we researchers make every effort to be as
thorough and accurate as possible, we are no substitute for trained
That said, I am a lawyer (although not practicing at the moment), and
I have consierable experience with LLC's. Your instincts are mostly
correct: an LLC does indeed provide the same liability protection as
a corporation does. It is not, however, necessarily a "sole
proprietorship." Many LLC's have multiple "members."
"A limited liability company is a hybrid business entity that combines
aspects of both a partnership and a corporation. It is formed under
the Corporations Code and consists of 'members' who own membership
interests. Members may be individuals, corporations, partnerships, or
other limited liability companies. The company has a legal existence
separate from its members. It provides members with limited liability
to the same extent enjoyed by corporate shareholders, yet allows
members to actively participate in management and control. The
general rule for limited liability companies is nonliability for the
individual members of the limited liability company for judgments for
the debts or obligations of the company."
--from the California case of _Warburton/Buttner v. Superior Court_
(2002) 103 Cal.App.4th 1170, 1187-88, internal quotations and
South Carolina law is similar to the law in California, and in fact
similar to the law of all 50 states. The South Carolina Uniform
Limited Liability Company Act of 1996 can be found at
It provides, in relevant part, that "the debts, obligations, and
liabilities of a limited liability company, whether arising in
contract, tort, or otherwise, are solely the debts, obligations, and
liabilities of the company. A member or manager is not personally
liable for a debt, obligation, or liability of the company solely by
reason of being or acting as a member or manager." (Section
It goes on to provide that mere informality in conducting the business
is not grounds for "piercing the veil" and imposing personal
"The failure of a limited liability company to observe the usual
company formalities or requirements relating to the exercise of its
company powers or management of its business is not a ground for
imposing personal liability on the members or managers for liabilities
of the company." (Section 33-44-303(b).)
Using a Lexis search, I was unable to find any cases in South Carolina
that imposed personal liability on LLC members, or alternatively,
invaded LLC assets to pay for the liability of individual members.
There are cases from other jurisdictions, however, and the law is
fairly uniform across different jurisdictions.
All of the cases apply the same standard for both direct "piercing"
(applying personal assets to corporate debts) and inverse "piercing"
(applying corporate assets to personal debts) as is applicable to
For example, in Connecticut, a creditor was successful in "piercing
the veil" against an LLC member who had commingled funds, exercised
total control over the business such that it was indistinguishable
from her personal affairs, AND had done so with knowledge of the
plaintiff's claim in an apparent attempt to defraud creditors.
The court applied a two-part test. First, it evaluated the
defendant's "control" over the entity in question: "Control, not mere
majority or complete stock control, but complete domination, not only
of finances but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its
Control by itself, however, is not enough. The control "must have
been used by the defendant to commit fraud or wrong, to perpetrate the
violation of a statutory or other positive legal duty, or a dishonest
or unjust act in contravention of plaintiff's legal rights," and must
"proximately cause the injury or unjust loss complained of."
Campisano v. Nardi, 212 Conn. 282, 291-92, 562 A.2d 1 (1989).
By contrast, where there has been no commingling, where the corporate
forms have been (mostly) respected, and where there is no evidence of
intent to defraud, the separate identity of the LLC is protected.
_Bonner v. Brunson_ (2003) 262 Ga. App. 521;585 S.E.2d 917
As far as "practical ways to implement the transfer," those are
implicit in the cases discussed above. Respect the separateness of
the legal entity. If you transfer property to the entity, create a
formal contract doing so. Spell out the rights and obligations of
each party to the contract as though each is a separate person.
Maintain separate funds. DO NOT pay for personal expenses with LLC
funds directly. If LLC funds are to be used for your expenses, pay
funds to yourself as part of a salary. Likewise, DO NOT pay LLC
expenses directly. If you must furnish funds to the LLC, reflect that
as a "capitalization" or "investment." In the future, be mindful of
the entity's solvency and your own -- you are already aware of the
issues that arise when an insolvent person, or one who faces claims,
transfers property to shield it from creditors.
Interesting article on Limited Liability Partnerships (LLPs) and
Limited Liability Companies (LLCs):
LLPs: How Limited is Limited Liability?
By Carol J. Miller
I hope this answers all your questions. If any of it is incomplete,
or requires further explanation, please don't hesitate to ask.
Clarification of Answer by
02 Jul 2005 10:00 PDT
Hello again Jack!
I think I have a better handle on what you need now, so let's take a
swing at this. If I'm still short of the mark, let me know.
I have located a number of articles discussing asset protection
strategies using LLCs. Some of the following discussion will rely on
those articles. Some will be the result of my own experience -- 11
years practicing law, including representing creditors and debtors,
and being myself involved in several different LLCs.
Depending on the kind of property we're talking about, a single LLC
might not be the best strategy for you. You mention that the assets
already IN the LLC are Treasury bonds. Those are so-called "safe"
assets, meaning that in and of themselves, they will not expose you to
a risk of liability. "Dangerous" assets are things like real
property, or a business -- owning them exposes you to a risk of
This is an interesting article targeted at physicians, but still
relevant for the points it makes:
It suggests putting ?dangerous assets? ? those likely to produce
lawsuits ? into one or more LLCs, and ?safe assets? into a Family
It also notes that an LLC CANNOT be used to protect the family home --
LLCs are not entitled to deductions for mortgage interest, or
exclusions of cap gains taxes.
The Law Offices of Robert J. Mintz maintains a web site --
http://www.rjmintz.com -- that includes a wealth of information about
estate planning and asset protection strategies. According to the
site, Mr. Mintz has 20 years' experience in the subject, and "has
written extensively and taught in the areas of asset protection, tax
and estate planning."
His page on LLCs as an asset protection strategy appears at:
and specifically, at
http://www.rjmintz.com/familysavingsllc-example.html, he makes the
same point about "dangerous assets:"
?Also, if investment real estate is owned, these properties should be
placed in separate LLC's. A Dangerous Asset such as real estate, which
creates significant potential liability should not be placed in the
same LLC with your financial assets.?
Mr. Mintz also suggests using a Family Trust to further insulate the
LLC from the member. He suggests putting the assets themselves into
LLCs -- separating dangerous assets from financial assets -- and then
having a Family Trust hold 100% of the membership interest in the
LLCs. This provides a level of anonymity that shields you from
fishing expeditions designed to discover the ownership of the asset.
You mention a specific concern about "overcapitalizing" the LLC with
more Treasury bonds than it needs to operate. But as you note, there
is no barrier against an LLC having "holding Treasury bonds" as its
primary business. When you set up the LLC, I assume you set it up to
"conduct any legal business," and not specifically for a narrowly
defined purpose. If its originating documents state that it can carry
on any legal business in the State of South Carolina, then you should
be perfectly fine -- again, AS LONG AS you do not put "dangerous"
assets with the "safe" ones.
In terms of respecting corporate forms, and ensuring that you are two
separate "persons," there is nothing wrong with putting as many
Treasury bonds into the business as you like.
HOWEVER -- you also mention that the LLC has employees. To my mind,
the existence of employees creates RISK. Employees can sue for
harassment, wrongful termination, discrimination, defamation,
intentional infliction of emotional distress, willful misconduct,
fraud, deceit, breach of contract, breach of the covenant of good
faith and fair dealing, high tide, Thursday, wanton infliction of
sunrise, and the heartbreak of psoriasis. If the LLC has employees, I
WOULD NOT put more Treasuries than you need into that LLC -- in fact,
I'm not sure I would put any in there at all. Create a new one to
hold your financials. Then keep them as separate as you keep each one
from yourself. For this, I like Mintz's idea to hold the LLC
membership in a trust, further insulating you from scrutiny.
There is another issue that has to be discussed -- withdrawals. The
whole point of having assets in the first place is to enjoy the fruits
of them. If they're locked away inviolate in the LLC, you may as well
give them away to strangers. So you need a strategy to disburse funds
to you from the LLCs without creating the appearance that the LLC is
just your personal checking account.
My earlier caution about solvency is critical here. You have to be
very sure that the LLC NEVER becomes insolvent by any definition as a
result of disbursements to you.
discusses the different kind of distributions available, and strongly
recommends that disbursements be made on a regular schedule, as either
salary, loan payments, or lease payments, as opposed to a simple
distribution of earnings on account of ownership interest. When the
LLC is paying you a salary, or paying back a loan, it is giving back
money for value received. That kind of distribution is a lot harder
to use as evidence of your "complete control and domination" of the
LLC, as opposed to you pulling money out of the LLC just because
you're the owner and you can. Make sure, if you want to use any of
the LLC assets, or any income derived from them, that you structure it
way ahead of time, that it is part of an overall value exchange
between you and the LLC, and that it does not leave the LLC insolvent.
Segregate your "safe" assets and your "dangerous" assets.
A business that is a going concern, that has employees (and customers?
eek! even worse!) is a "dangerous" asset.
Real property is a "dangerous" asset, but remember that your home
cannot be held in the LLC. Consider a family trust or Family Limited
Partnership for the home.
Consider a trust to hold the membership interest in the LLC.
Be careful with distributions of income or assets.
Thank you for the opportunity to add further value to my answer. If
there's anything else you need, please let me know.