There is no question whether the doctrine of “piercing the corporate veil” will be tailored to and applied in the limited liability company (LLC) context. In cases of fraudulent activity by members and cases where undercapitalization and member behavior creates inequities in the marketplace, courts will balance the scales by imposing personal liability on wrongdoers. The question is to what extent courts will look to formalities followed by an LLC to determine whether its members have treated the business and assets of the entity as separate from each’s personal and separate business and assets.

Perceived problems of excessive risk taking and seemingly inequitable behavior by members of LLCs are likely to result in attempts to pierce a company’s veil of limited liability. Because of the uncertainty regarding an LLC’s susceptibility regarding formality observance under the doctrine of piercing a company’s veil, strict adherence to formalities and adequate capitalization remain especially important in protecting member’s limited liability at this early point in the development of the laws related to LLCs.

  1. Formality Requirements Under Oregon Statutes.
    1. Filings with the State of Oregon. The Oregon statutes require that the Articles of Organization for an LLC, the Articles o Amendment, if any, and annual reports be filed with the Secretary of the State of Oregon. ORS 63.004.
    2. Record Retention. Each LLC must keep the following records available at its registered office, or such other office as specified in the company’s Operating Agreement (ORS 63.771):
      1. A current list of the full name and last known business residence or mailing address of each member and manager, both past and present;
      2. A copy of the Articles of Organization and all amendments thereto, together with executed copies of any powers of attorney pursuant to which any amendment has been executed;
      3. Copies of the LLC’s federal, state, and local income tax returns and reports, if any, for the three most recent years;
      4. Copies of any current effective written operating agreements and all amendments thereto, and copies of any financial statements of the LLC for the three most recent years;
      5. Minutes of any meeting of members or managers as described in ORS 63.150;
      6. A statement regarding capital contributions and dissolution; and
      7. Any written consents obtained from members pursuant to ORS 63.150.
  2. Argument for Annual Meeting Requirement. Oregon statutes do not impose an obligation for an LLC to conduct an annual meeting of its members. Despite this fact, there are numerous reasons for including such a requirement in the operating agreement of a given LLC to prevent liability issues from arising and to limit the scope of those issues which already exist. Among those reasons are the following:
    1. Newness; Changes in the Law. The state LLC statutes for each jurisdiction are expected to change dramatically during the upcoming legislative terms to keep pace with the check-the-box regulations. Many of the changes are anticipated (the dissolution default provisions, for example) and there are sure to be surprises. This onslaught of new legislation may have strong implications for LLCs particularly conducting business outside of Oregon.
    2. Excessive Informality will Lead to Personal Liability for Members. Excessive informality, such as the commingling of assets, may jeopardize a member’s limited liability. The absence of formality relating to an entity may lead its members to become increasingly casual in their dealings, both with third parties and with respect to personal and entity assets.
    3. Matter in Dispute. In the event of a dispute between members of an LLC regarding internal management or the meaning of terms of an agreement, the members will be forced to submit to a court’s interpretation of the agreement, absent written records of action and negotiated decision-making. In such an absence, important elements of the agreement would be gleaned from general evidence on how the parties operated and interacted with each other before the dispute arose.
    4. Ensure Recordation of Matters Requiring Member Consent. There is no statutorily-imposed formality requirement for the recordation of LLC activity requiring the consent of its members, however doing so lend certainty and some finality to LLC actions, as among the membership.
    5. Protection of New Members. In contrast to the formation stage, an LLC’s attorney might not otherwise be consulted prior to the addition of a new member to an LLC. In addition to the consent of the membership, Oregon statutes require that the new member’s admission be reflected on the company’s record’s. ORS 63.245(1)(b). Should a dispute later arise, a claimant may point to any missing formal action as a basis for denying the new entrant’s membership in the company. An annual meeting presents the opportunity to correct any such oversights before a costly dispute arises.
    6. Changes in Operating Agreement Needs. Unlike standard incorporation forms, the implementation of the initial operating agreement may work an injustice to an LLC’s members, as the laws develop and change, as the needs and expectations of the parties change or their interests pass on to successors over the long-term. An annual meeting gives the opportunity to review the agreement with the members to ensure it continues to facilitate members’ needs and complies with the law.
    7. Conducting Business in Another State. A strong concern for attorneys regarding the reliability of the limited liability feature of LLCs relates to out-of-state operations of such entities. Aside from determining the need for special qualification of Oregon LLCs out-of-state and related foreign state tax considerations, consideration must be paid as to whether the limited liability attribute will exist for operations conducted in the foreign jurisdiction.