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If I start a Corp with a few shareholders and then form an…

If I start a...

If I start a Corp with a few shareholders and then form an LLC with the corp as a member with another person as the other member, will the corp have liability protection from lawsuits against the LLC and vice versa?

Lawyer's Assistant: No, you can ask a one off question to try things out.

Does a corporation as an LLC member have the same liability protection as an individual LLC member?

Lawyer's Assistant: Can you tell me what state the LLC is registered in?

Minnesota

Lawyer's Assistant: Has anything been officially filed? If so, what?

Nothing

Lawyer's Assistant: Anything else you want the lawyer to know before I connect you?

The corp will be an operating company and the LLC the holding company

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11/24/2017
KLAW
KLAW, Attorney
Category: Business Law
Satisfied Customers: 2,283
Experience: I have over 20 years of experience in commercial real estate law, finance, consumer credit, landlord tenant, and business law.
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in most cases both the corporation and the LLC will be protected.Personal liability protection can be lost if a court can “pierce the corporate veil,” in legal terms, and find the accounting and operations of an S corporation are in practice not separate from the owners. In such a case, the court can rule the company serves only as the owners’ alter ego, according to the The San Diego Business Lawyer Blog. Liability protection can also be lost if a court finds that allowing personal liability sanctions a case of fraud, or promotes injustice. To protect against a court piercing the veil in a lawsuit, corporate bank accounts cannot be co-mingled with personal accounts, nor can corporate funds be used for personal purposes. Shareholders and officers cannot divert funds from a corporate account to avoid paying creditors. Courts can also rule that "grossly inadequate capitalization" of a corporation can be evidence of fraud, according to the Center for Rural Affairs. Courts generally will not pierce the corporate veil simply because a company failed and left debts in its wake.The limited liability protection of an S corporation will not protect a shareholder from personal liability arising from his own misdeeds. But the corporate status will protect other shareholders from sharing the liability so long as there is no evidence of a fraud sanctioned through the corporate entity.I hope this clarifies. Please don’t forget to rate the question with stars.
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Customer reply replied 6 months ago
If the corporation fails and goes out of business would the shareholders retain ownership of the LLC assets? Would it be better for the shareholders to be individual LLC members to retain membership in the LLC?
They could retain ownership, if the LLC’s operating agreement contains a provision that if the corporation fails, all the interest in the LLC would transfer to the remaining members. I hope this further clarifies. Please don’t forget to rate question with stars so that I will receive credit and payment for assisting you with your question. We as attorneys are only paid when you rate the question because we are not employees of Just Answer.
KLAW
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Category: Business Law
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Experience: I have over 20 years of experience in commercial real estate law, finance, consumer credit, landlord tenant, and business law.
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DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.

The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).

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