LLC Idea

This was my response to an individual who apparently formed an LLC with one asset: his sailboat. Ostensibly, this was to protect himself from liability in case someone were injured aboard his boat. Dumb Idea and waste of time.


"As to forming a Limited Liability Company for the purpose of protecting yourself from demonic trial lawyers, the discussion up to this point has been amusing. Let me clear up a couple of things.

My take: if you have established a Limited Liability entity whose sole asset is your boat; and you've done so purely to limit potential tort liability; and for no other reason other than you're too cheap to pay for insurance, and you have no other actual business purpose 1.) you're an idiot. 2.) whatever professional advised you to do that is an idiot and 3). you're an idiot.

In North Carolina as with all other states, the formal requirements to maintain the existence of a single-member LLC are graciously few. I have my own LLC, and my shareholder meetings generally take place at the bar or on the crapper. I usually flush the minutes, but not always.

While it was in some early statutes, in NC it is no longer required to "hold one's self out," whatever the hell that means, as an LLC to recive the benefit of limited liability. If you've fulfilled the requirements, you're entitled to the protection.

HOWEVER, having an LLC just for liability purposes and self-insuring is a really dumb idea for several reasons:

One: People seem to forget that you're always liable for your own tortious acts. Meaning, just because you've got your LLC doesn't mean you're no longer liable for negligence, even if you're acting solely in the capacity of the LLC. If you personally do something dumb and hurt someone on your boat, even if it's owned by an LLC, your personal assets may be at risk.

Second, if your "business" has no real legitimate business purpose, that is, it is but a "mere instrumentality" of your personal affairs, you may not be entitled to protection. Courts may apply the "piercing the veil" doctrine. Note that this is not for the IRS to decide, as stated below, but for the Courts, so we don't really know the rules yet. It hasn't been done yet in NC because the statute is so new, but Courts in North Carolina are eagerly awaiting a test case on applying the piercing the corporate veil doctrine to the LLC form, and lots of states have pierced the veil of LLCs just as if they were corporations.

Bottom line: if you're self-insuring, and thinking that just by having your boat owned by an LLC will protect you, here's a tip: After the sheriff hauls your trusty carbon-rigged "corporate asset" off to pay for some experimental surgery on your neighbor's aggravated hangnail, do two things. One, think of me, and two, Sue your lawyer, or whatever other idiot told you to do that. They'll be okay. Unlike you, they pay their malpractice premiums.

Here's an idea: keep proper insurance, take reasonable precautions on your boat, train your crew properly, warn your guests about the possible dangers, and stop trying to get something for nothing...

And stop shitting on lawyers all the time...you may need us one day."