Formal Attire

Some people (including me) operate some type of business. Many businesses are operated under the form of an entity, such as a LLC, C-Corporation or S-Corporation. One of the primary reasons to operate a business as an entity is to provide liability protection. In other words, any claims against the coporation would be limited to the assets of the corporation and would not extend to the business owner's personal assets (e.g., your home).

Unfortunately, I see many business owners that inadvertantly threaten the liability protection offered by their entity. When a business entity fails to respect the corporate formalities, a plaintiff may disregard the entity for liability purposes and reach the business owner's personal assets. The fancy legal term for this concept is "piercing the corporate veil." The logic makes sense and goes something like this:

If you do not respect your business as the entity that it is, then you will not be allowed to use that same entity to shield yourself from personal liability when a creditor arises. The following are some ways to help maintain the corporate formalities and maintain the intergrity of your corporate "veil":

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  Have an updated corporate book with current corporate documents (such as Articles of Incorporation, By-laws, etc.)
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  Hold an annual meeting for the business and maintain minutes
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  Maintain a separate business checking account and refrain from using that account for personal expenses
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  Sign all business related documents as a representative of your business and not as an individual
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  Include you business designation (e.g., LLC or Inc.) on all letterhead, advertising, etc.

The bottom-line is that if you treat you business like a business, you will be able to enjoy the benefits of having that business in the first place.