The limited liability company is often touted as the greatest thing since sliced bread when it comes to business entities, but is this really true? As is often the case, we can say yes and no. In this article, we take a look at one aspect that is true, but which can get you in a ton of trouble.

One are that LLC is touted as being better than other business entities, particularly corporations, is in the area of formalities. Whereas a corporation needs to have a board of director, hold meetings and so on, most states require little administrative effort on the part of the owners or managers of limited liability companies. While this may sound like a good thing at first glance, it can actually lead to huge problems down the road.

So, what is the big deal? Well, the value of an LLC is the same as with a corporation. The business entities provide you with a protective shield. It keeps any of the business liabilities and debts becoming yours unless you do something to circumvent it. An example would be personally guaranteeing a business debt such as a lease.

There is, however, a second way you can waive the protective shield and leave yourself completely exposed. The concept is known as piercing the corporate veil. It is a concept that applies to limited liability companies as well. The basic argument that will be made is you and the LLC are really the alter ego of each other. If the court agrees, it will set aside the LLC protective shield and hold you personally liable for the debt in question.

One of the factors the court will look at is how the business has been run. To see this, the court will look to the administrative documents in the corporate book. You can probably guess what happens if the court finds that you don't have any! It is not good for you. Although technically you do not have to do things like yearly meetings, you really want to. Why? Because you want to be able to show that your company was run as a legitimate business if someone tries to attack it.

There are thousands of limited liability companies across the country that have empty corporate books. These are all time bombs that could go off at any time and their owners don't even have a hint of the problem facing them. Don't make this mistake.

Thomas Ajava writes <a rel="nofollow" href="http://www.limitedliabilitycompanyformationincalifornia.com/LLC-Information-Articles">LLC articles</a> on a host of topics for <a rel="nofollow" href="http://www.limitedliabilitycompanyformationincalifornia.com">LimitedLiabilityCompanyFormationinCalifornia</a>.