How to Maintain Your LLC and Keep It Active

Forming an LLC is just the beginning. Proper maintenance protects your liability shield and keeps your business in good standing.

Why LLC Maintenance Matters

The liability protection an LLC provides isn't automatic or guaranteed. Courts can "pierce the corporate veil" and hold you personally responsible if you don't maintain proper separation between yourself and your LLC.

Proper LLC maintenance:

• Protects your personal assets from business debts and lawsuits
• Maintains good standing with the state
• Preserves business opportunities (contracts, loans, partnerships)
• Simplifies taxes with clean records
• Adds credibility with clients and partners

Separating Personal and Business Finances

The most important maintenance task is keeping personal and business finances completely separate.

Open a Dedicated Business Bank Account

All business income should go into this account, and all business expenses should be paid from it. Never use personal accounts for business transactions.

Get a Business Credit Card

Use a separate card for business expenses. This creates a clear paper trail and makes expense tracking easier.

Pay Yourself Properly

Don't just transfer money to your personal account when you need it. Instead:

• Document distributions in your records
• Follow your Operating Agreement's distribution rules
• If elected as S-Corp, pay yourself a reasonable salary

Avoid Commingling

Never:

• Pay personal bills from your business account
• Deposit business income into personal accounts
• Use business funds for personal purchases
• Let family members use business accounts

Record Keeping

Good records demonstrate your LLC is a legitimate separate entity. Keep these documents organized and accessible:

Formation Documents

• Articles of Organization
• Operating Agreement
• EIN confirmation letter
• State certificates

Meeting Records

• Meeting minutes (even informal notes for single-member LLCs)
• Resolutions for major decisions
• Member/manager voting records

Financial Records

• Bank statements
• Tax returns
• Receipts and invoices
• Contracts and agreements

Compliance Records

• Annual report filings
• Business license copies
• Registered agent correspondence
• State correspondence

Protecting the Corporate Veil

Courts look at several factors when deciding whether to pierce the corporate veil:

Did You Maintain Separation?

• Separate bank accounts and financial records
• Proper documentation of transactions
• Clear distinction between owner and LLC assets

Did You Follow Formalities?

• Operating Agreement in place
• Proper authorization for major decisions
• Compliance with state requirements

Was the LLC Adequately Capitalized?

• Sufficient funds to meet foreseeable obligations
• Appropriate insurance coverage
• Not stripping assets to avoid liabilities

Was There Fraud or Misrepresentation?

• No using the LLC to defraud creditors
• Honest dealings with third parties
• No intentional undercapitalization to avoid debts

Common Mistakes to Avoid

• Mixing personal and business finances - The #1 way to lose liability protection
• Skipping the Operating Agreement - Even single-member LLCs need one
• Missing annual reports - Leads to loss of good standing and potential dissolution
• Ignoring registered agent notices - Can result in missed lawsuits and default judgments
• Not updating information - Keep your address and member info current
• Failing to document decisions - Major decisions should be in writing
• Operating in other states without registering - Creates compliance and legal issues

Frequently Asked Questions