Single-member limited liability companies are very common in Michigan. Most small business owners operate under this type of business entity. Some are even able to navigate the confusing system that the State of Michigan has set up on their own and been able to file their articles of organization and become a registered limited liability company or LLC with the State. So your personal assets are protected now, right?
Ummmm… Maybe. Look here is the deal: A creditor’s attorney is going look for any hole in your business entities shield and try and expose it, and because of that if all you have done is filed a document with the State and paid a filing fee, he is not just say, “Oh well, I guess there is no way this business owner is personally liable” and move on. So what do you need to do to close up those holes? Here are a few DO’s, DON’T’s, and RECOMMENDATIONS.
DO have a well drafted operating agreement. Your business’ operating agreement is the rules you agree to operate by. The great thing about this document is it is completely adjustable to whatever you want the rules to be. There are very few rules that your business has to follow and most requirements are adjustable to your preferences.
DON’T commingle funds. Often times with a single-member LLC it’s easy to confuse where the business ends and you personally begin (especially if your business is based out of your home). Commingling funds is easy to do and often times business owners don’t even know they are doing it. DO have separate bank accounts for both yourself and your business.
DON’T transfer property to or from the business to yourself personally. Your personal property is yours. The same is true for your LLC: the LLC’s property is the property of the LLC. This does not mean that you cannot transfer property ever. If you want to transfer property, DO have proper documentation.
Since we brought up documentation, if you have to infuse some cash into your LLC, DO have documentation for that transaction. Whether you want that to be treated as a capital call or a loan to the business, the right paper trail needs to be in place. It is not uncommon that in order to get a business loan you will have to apply for it personally. Even in that situation, you still want an agreement that shows you personally loaned that amount to the business.
I also highly RECOMMEND creating meeting minutes for actions that are not in the normal course of business. It’s one thing to have your operating agreement and other corporate documents, but the minutes you create surrounding those documents show the actions of the LLC match what is written in those documents.
In the end, it is vital that you remember that your LLC is a separate and distinct entity from you. You might be the only owner. You might even be the only employee. But you created that business to be a new entity. To enjoy the benefits of liability protection you have to treat that business as that separate and distinct entity.
For more information on this subject and other business related issues, contact The Business Law Group and let us help your business out today.