FTC says a Corporation or LLC is No Shield for Fraud

Earlier this month, as part of the FTC’s ongoing efforts to protect consumers in financial distress, the Federal Trade Commission announced a settlement in a scheme that allegedly defrauded consumers out of more than $100 million by falsely claiming they could reduce their tax debts. This is the agency’s first action against a tax relief company and a good example of the consequences for those who may consider using a Limited Liability Corporation, or LLC, as an extension of its shareholders, in order to shield personal assets, advance their private interests or to perpetrate a fraud. While a common misconception is that doing business under the “LLC” will inclusively protect an individual’s assets, courts typically examine the relationship between the entity and the owner more closely. If there is a unity of interest and ownership such as commingling or diversion of assets, even if the owner avoids personal guarantees, he or she may find themselves liable to creditors of the business under a corporate law theory known as "piercing the corporate veil.”