How can $175k of LLC debt affect personal credit?

[bkforum1234]

Let's say a Wyoming LLC has $175,000 of unsecured obligations to a major global shipping company.

According to WyomingCompany.com

A Wyoming corporation or LLC offers its officers and directors the highest degree of protection from lawsuits filed by disgruntled creditors or overzealous plaintiff attorneys. Doing business as a Wyoming Corporation or LLC can give you asset protection and business privacy.

The credit application has the following language

To the best of my knowledge the above statements are true. My signature below A) indicates my permission to obtain credit information
from the sources referenced and B) attests financial responsibility and willingness to pay invoices in accordance with terms.

This is signed by bkforum1234, Manager

The individual SSN has never been provided, always use EIN

What is risk of creditor coming after bkforum1234 personally?

At what point will any collection efforts have a negative impact on bkforum1234's individual credit?

[despritfreya]

You signed as manager of the LLC, not individually and I assume you did not sign a personal guaranty. IMO the creditor would have to pierce the "corporate veil" to get to you individually. Such is tough to do, especially if you were not disregarding the LLC form by, say, treating its bank account as you own personal account.

Des.

[bkforum1234]

despritfreya,

Yes "piercing the corporate veil" is exactly what I want to investigate.

Here are weaknesses that I could guess of where the corporate veil could be weak:

1) When signing instead of signing right together as something like "bkforum1234 acting as Manager of abc LLC" The signature had two lines next to each other and the first line was signed and the second line said "Manager". Is this as strong on the first option?

2) When paying some previous bills for this creditor, nine (9) separate credit cards were used to settle the charges. These are a combination of LLC credit cards (4), bkforum1234 sole proprietor business cards (2) and bkforum1234 individual cards (3). It can be argued that some of the charges on some of the cards are not related to the LLC. The funds to pay off the business charges on these credit cards originated from a business bank account. Is this a weakness in the veil?

3) Some funds were transferred directly from bkforum1234 personal bank account to the LLC bank account to then pay the credit cards. This seems clearly like an investment in the LLC, though no documentation to the effect. Is this ok, or can it be documented to secure the veil?

Is there a general thread or FAQ here about "piercing the corporate veil"?

[despritfreya]

1) While I would prefer the signature block to be:

abc, LLC

By_______________
Its Managing Member

I don’t necessarily have a problem with the scenario listed in item 1 above, especially if the contract clearly states it is between the vendor and the LLC.

2) The scenario in item 2 above is a little more troubling. The mixing of business and personal credit cards, especially if the non entity cards are also used for non entity purposes, is an argument that one is ignoring the LLC form. However, this is all subjective and would turn on specific facts. If you can show that the LLC paid for the business related charged and the individual paid for the non-business related charges such would go a long way in establishing that the two are not the same.

3) So, under the scenario in item 3 above, how do you prove that the entity paid charges it ran up vs. the charges that the individual ran up - leading us back to scenario 2? Normally a transfer of funds is either carried on the entity books as a capital contribution or a loan. By ignoring such formalities, one plays into the hands of that alter ego theory.

If creditors are beginning to make noise, I believe the best course of action is to sit down with a good corporate attny and go over all of the facts of the case. We can only venture a guess as to what might or might not happen since we do not have all of the facts. There are just too many variables. Remember, anyone can sue another. It’s up to that other person to put up a good defense.

Des

[bkforum1234]

Des,

Thanks for the info and the advice to hire a lawyer is well received.

[BKAttyMI]

Almost all of the "LLC" debt cases I've handled have had a personal guaranty involved somewhere. Lenders do not typically give credit to an LLC unless there is a personal guaranty behind it.