In my last post I discussed some of the trends related to LLCs and corporations. I noted that in 2010 LLC’s were the preferred entity choice over corporations by a more than two to one margin. One of the differences between LLC’s and corporations are the consequences that could result from failing to follow certain formalities.
In a recent case a local judge allowed a creditor to pierce a corporation’s veil and sue the corporation’s lone shareholder. The judge allowed the suit against the shareholder noting that annual meetings were not held, separate books were not maintained and the corporation was grossly under capitalized.The creditor obtained a $137,454.00 judgment against the shareholder.
While corporations have to adhere to numerous formalities, LLC formalities are fewer and the consequence of not following them is less significant than failing to follow corporate formalities. And while having fewer formalities should not be the only reason to chose an LLC over a corporation it can be an important consideration depending on one’s personality.
If you’re considering starting a business call us to discuss which entity would better serve you. If you have a business that’s incorporated you should take some time to review if you’re meeting the formalities that apply to corporations.
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