Does Your LLC Actually Protect You? Piercing the Corporate Veil in Michigan

Most people form an LLC for one reason: to keep the business’s debts from becoming their own. Michigan law delivers on that. Unless the law or the operating agreement provides otherwise, a member or manager of an LLC “is not liable for the acts, debts, or obligations of the limited liability company” (MCL 450.4501(4)).

That protection is strong, but it is not unconditional. In the right case, a court will disregard the company’s separate existence and hold the owner personally responsible for what the company owes. Lawyers call this piercing the corporate veil. This post explains when Michigan courts do it, what the cases have turned on, and the ordinary habits that make it unlikely to happen to you.

Does an LLC Protect Your Personal Assets in Michigan?

Michigan courts begin with a presumption that a company is separate from the people who own it, and they apply that presumption even when one person owns and runs the entire business (Green v. Ziegelman, 310 Mich App 436, 451 (2015)). Green involved a corporation, but the Court of Appeals applies the same veil-piercing rules to LLCs (Florence Cement Co. v. Vettraino, 292 Mich App 461, 468-469 (2011)), so a single-member LLC is not automatically more exposed than one with several owners.

Disregarding the company is the exception. The Court of Appeals has described veil piercing as “an equitable remedy sparingly invoked to cure certain injustices that would otherwise go unredressed” (Gallagher v. Persha, 315 Mich App 647, 654 (2016)).

When Will a Michigan Court Pierce the Corporate Veil?

A party asking a Michigan court to pierce the veil generally has to prove three things:

1. the company was a mere instrumentality of its owner, in other words an alter ego rather than a genuinely separate business;
2. the owner exercised that control in a way that defrauded or wronged the party; and
3. the party would suffer an unjust loss if the court respected the company’s separate existence.

Both Florence Cement (292 Mich App at 469) and Green (310 Mich App at 455-459) apply this test. On the second element, the owner need not have caused the company itself to commit a particular fraud or wrong; it is enough that the owner’s control was exercised in a way that wronged the party (Green, 310 Mich App at 456-458).

There is no mechanical checklist; courts look at the whole picture. Two limits matter to business owners. First, forming a company to avoid personal responsibility is not, by itself, a wrong. That is what an LLC is for. Second, a loss is generally not “unjust” if the creditor fully knew how the owner was using the company and chose to go ahead anyway. Green makes both points (310 Mich App at 459). A lender or landlord that wants an owner’s personal backing usually gets it the direct way, with a personal guaranty.

The test is demanding in practice. Our post on the Demerse arbitration case describes a 2026 decision in which the party seeking to pierce did not produce the evidence the elements require.

What Courts Look At: Two Michigan Cases

Two published Court of Appeals decisions show the kind of facts that lead a court to pierce.

In Florence Cement, three members formed an LLC, Shelby Property Investors, to develop residential lots. The court found that they “made no distinction between their own debts and Shelby’s debts.” A member turned property over to the company without a formal transfer. Members paid development costs themselves and had the company reimburse them directly. The company paid interest on loans the members had taken out personally. It had debt in the millions and capital contributions of only $2,000. When the project wound down, one member signed a sworn loan-draw statement that understated what the company owed its concrete contractor, which was left more than $114,000 short. The court pierced the veil, explaining that “where members do not treat an artificial entity as separate from themselves, neither will this Court” (292 Mich App at 469-471).

In Green, one man owned and ran an architecture firm that had done almost no work in years. The firm survived on more than $630,000 in loans from him and from another company he owned, with no notes and no repayment. It occupied space for about 20 years with no written lease and no rent. It paid his car lease, phone bills, travel, and supplies for his sculpting hobby, and it kept no minutes of any meetings. The trial court found that he had led business partners to hire the firm while it had no independent income to meet its obligations, and the Court of Appeals agreed the evidence supported that finding. After the partners obtained a judgment of more than $156,000 against the firm, he formed a new limited liability company, admitting that one reason was to “get out from under this judgment.” He moved the firm’s employee to the new company and bought the firm’s furniture and other property. The court upheld a judgment holding him personally liable (310 Mich App at 442-443, 459-465).

Taken together, the two cases show the patterns courts look for:

• personal and business money mixed together, in either direction;
• money moving between owner and company with no note, lease, or other paperwork;
• a company with too little money of its own for the obligations it was taking on;
• company funds paying the owner’s personal expenses;
• records and formalities ignored whenever they were inconvenient; and
• assets moved out of reach once a claim or judgment arrived.

How to Keep Your LLC’s Liability Protection Intact

The habits that protect owners are ordinary ones. Run the company as a real, separate business:

• Keep a separate bank account and run the company’s income and expenses through it. If the company reimburses you, document what the payment was for.
• Put loans between you and the company in writing, with a note and repayment terms, and treat a lease of your property to the company the same way.
• Fund and insure the company in a way that fits the obligations it takes on.
• Sign contracts in the company’s name, with your title. Our post on business credit cards shows how a signature can turn a company debt into your own.
• Keep your operating agreement current and keep the records it calls for.
• Do not take distributions the company cannot afford. A distribution is a payment of money or property to owners because of their ownership. The LLC Act bars one that would leave the company unable to pay its debts as they come due in the usual course of business. It also bars one that would leave the company’s total assets below its total liabilities plus, unless the operating agreement provides otherwise, what it would need to pay other members whose rights on dissolution come first (MCL 450.4307(1)).
• If a claim or judgment arrives, do not move the business into a new company to avoid it. That is what happened in Green.
• Be accurate when you describe the company’s finances to customers, lenders, and partners.

Other Ways LLC Owners Become Personally Liable

An LLC protects owners from the company’s debts. It does not protect them from their own obligations or their own conduct. Owners commonly become personally responsible in ways that require no veil piercing at all:

• A personal guaranty makes you liable on your own promise if the company does not pay. See our posts on personal guaranties and business credit cards.
• You remain responsible for your own wrongful conduct. The Michigan Supreme Court has held that an owner who personally commits an intentional tort in running the business, meaning a deliberate wrong such as fraud or conversion of someone else’s property, can be held liable for it without any need to pierce the veil (Department of Agriculture v. Appletree Marketing, LLC, 485 Mich 1, 17-19 (2010)).
• Under MCL 450.4308, a member or manager who votes for or assents to a distribution that violates MCL 450.4307 or the operating agreement is personally liable to the company for the excess if it is established that he or she did not comply with MCL 450.4404. That section requires a manager to act in good faith, with the care an ordinarily prudent person in a like position would exercise, and in a manner he or she reasonably believes to be in the company’s best interests. A member who accepts or receives a distribution with knowledge of facts indicating it violates those limits is also liable to the company for the excess. In Florence Cement, the court directed that the members repay improper distributions to the company so it could pay the contractor (292 Mich App at 477).
• Federal law makes a person who is required to collect and pay over taxes, such as income and payroll taxes withheld from employees’ wages, and who willfully fails to do so, personally liable for a penalty equal to the unpaid tax (26 U.S.C. § 6672).

Frequently Asked Questions

Can a creditor pierce the veil of a single-member LLC in Michigan?

It can try, but owning the company alone does not make piercing easier. Michigan courts presume a company is separate from its owner even when one person owns and runs it. The creditor still has to prove all three elements: the company was the owner’s mere instrumentality, the owner exercised that control in a way that defrauded or wronged the creditor, and the creditor would suffer an unjust loss.

Is skipping meetings or minutes enough to pierce the veil?

Not by itself. No single factor decides the question. Missing minutes were part of the evidence in Green v. Ziegelman, alongside undocumented loans, personal expenses paid by the firm, and a move to a new company to avoid a judgment. Even strong evidence that a company was its owner’s alter ego is not enough without a fraud or wrong and an unjust loss.

If a creditor already has a judgment against my company, can it still come after me?

Possibly. In Gallagher v. Persha, the Court of Appeals held that creditors holding an unpaid judgment against a corporation could file a new lawsuit to enforce that judgment against the owner by piercing the veil. The creditor does not have to prove the debt again, because the judgment already establishes it, but it still has to prove the elements for holding the owner responsible.

Does my LLC protect me if I personally cause the harm?

No. An LLC shields owners from the company’s debts, not from their own conduct. In Department of Agriculture v. Appletree Marketing, LLC, the Michigan Supreme Court held that an LLC’s sole member and manager could be personally liable for intentional torts he committed in running the business, without any need to pierce the veil.

Related reading: how an LLC lawyer can help you form and run your company, what belongs in a Michigan LLC operating agreement, what to know before signing a personal guaranty, and working with a Grand Blanc business lawyer.

Please note: This article is provided for general educational and informational purposes only and does not constitute legal or tax advice. Reading it does not create an attorney-client relationship between you and the Law Offices of Maynard F. Newman, P.L.L.C. The law may change, and the outcome of any case depends on its specific facts; confirm the current law and consult qualified legal and tax advisors before acting. This content may also be considered attorney advertising.