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

LLC with the corp as...
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?
JA: No, you can ask a one off question to try things out.
Customer: Does a corporation as an LLC member have the same liability protection as an individual LLC member?
JA: Can you tell me what state the LLC is registered in?
Customer: Minnesota
JA: Has anything been officially filed? If so, what?
Customer: Nothing
JA: Anything else you want the lawyer to know before I connect you?
Customer: The corp will be an operating company and the LLC the holding company
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Answered in 11 minutes by:
11/24/2017
KJLLAW
KJLLAW, Attorney
Category: Business Law
Satisfied Customers: 1,757
Experience: Attorney at Law Office of KJLLAW
Verified
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 20 days 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.
KJLLAW
KJLLAW, Attorney
Category: Business Law
Satisfied Customers: 1,757
Experience: Attorney at Law Office of KJLLAW
Verified
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Category: Business Law
Satisfied Customers: 1,757
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