Keeping Limited Liability in a Sole Member Limited Liability Company

You filed your Articles of Organization, received an EIN, and are prepared to begin your own business.  You even formed a Limited Liability Company (“LLC”) in order to protect you and your family from any legal issues your company may face. 

However, if the unthinkable should happen and there is a judgment against you unless you take precautions now, you may be found personally liable.  A corporate entity, including an LLC, is separate from the sole member and must be treated that way for the life of the LLC in order to maintain the limited liability protection that is offered.  If not, you can be held personally liable in which case the judgment holder can come after your personal assets. 

So what can you do to protect yourself?  Below are three suggestions that will help maintain separate identities for both you and your LLC.

  1. As you have your Articles of Organization and your EIN, open a business bank account for your LLC.  In Pennsylvania, all that is required to open the account is your Articles of Organization and your EIN.
  2. Keep personal and business funds separate.  Do not pay for personal items from your LLC’s bank account.  Your company can loan you money or compensate you, but these events must be documented.  Further, never deposit a customer’s money into your personal account; make sure it goes into your company bank account first.
  3. Always sign contracts or documents as the company, never personally.  For example, if you have titled yourself, President of your LLC, when signing a contract for the LLC, make sure it says, “Your Company, LLC, by John Doe, President.” 

While this list is by no means exhaustive, these basic principles should help minimize your liability as the sole member of your LCC.  Remember, you and your LLC are considered two separate entities and must remain that way.  The more commingling that occurs, your LLC protection will decrease and your risk for personal liability will increase.

For advice specific to your situation, you should speak with an attorney in your state that focuses on business law.