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Costly Mistake #1: Believing that LLCs don't have to follow the same rules as a Corporation -- or that LLC veils have never been pierced.
The fact is LLC's are being pierced under the same rules as a corporation and just as often. The myth started back in 1994 with a George Washington Law Review article that stated, "no court has pierced the veil of a domestic LLC." This was indeed true at the time it was written, but not anymore. Some states, such as Colorado, have mandated through legislation that courts are to apply corporate case law to an LLC when determining the circumstances when the veil will be pierced and members held personally liable. Other states, such as Minnesota, North Dakota, and Illinois have enacted statutes that follow a similar line. The absence of statute, however, does not relieve an LLC member from personal liability. Most courts seem willing to apply corporate veil piercing principles to LLC members whether or not the jurisdiction has enacted legislation directing courtsto do so. The use of corporate veil piercing principles may actually lead to higher likelihood of a successful veil piercing of an LLC due to people's mistaken belief in the myth that an LLC is not required to follow the same rules as corporations such as keeping diligent corporate records.
