With the intent to protect their personal assets from business liabilities, most business owners decide to run their companies as a Limited Liability Company (LLC) or as a Corporation (most often as an S-Corporation).  These structures protect business owners through a “corporate veil” or shield which separates them from their company.

However, a court does have the power to “pierce the corporate veil” or shield if the business owner didn’t take the proper steps to maintain the privilege of liability protection.  So if you’re currently operating an LLC, General Corporation, or S-Corporation, then follow these five crucial steps to preserve your liability protection:

1.  Don’t use your personal name on contracts and business correspondence.  Business owners should use the name of the entity to sign contracts or any other business communication instead of using their personal names.  Make it clear to third parties that they are dealing with an entity by using the name of your LLC or Corporation.

2.  Separate business and personal finances.  It is important to keep separate bank accounts for your personal accounts and business accounts so that there isn’t any overlap.

3.  Follow the rules.  Though the rules for an LLC are not as strict as those for a corporation, you will need an operating agreement in which you will still need to track and document your business decisions.  Corporations require bylaws, annual meeting minutes, and corporate resolutions.  If you need support with compliance, let us know.  We can definitely help.

4.  Don’t commit any misconduct.  A court can dissolve your liability protection and hold you personally liable for business claims if you use your company to commit misconduct or fraud.

5.  Make sure your business has enough capital.  If something goes wrong and your business doesn’t have sufficient capitalization, that may cause a court to pierce the shield of the business.

To learn more about maintaining the viability of your business through skillful business planning, call us today at (209) 877-7457 to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.  Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.