set up a corporation what should you do or don’t
Please keep in mind that a company is created under the State codes
and that there are certain do’s and don’ts in its operations.
For your corporation to be effective in limiting your personal liability
from business debt, it must perform as a corporation, be treated as
a corporation and be recognized as a corporation by its creditors.
Beware of the seven most common mistakes that allow creditors to “pierce
the corporate veil” and subject you as the owner to personal
liability for the debts of the business.
1. DO NOT COMMINGLE CASH
Always operate your corporation as a separate entity distinct from
yourself in every respect. Using corporate funds to pay for personal
debt is one of the easiest ways for creditors to challenge the validity
of your corporation and attack your personal assets.
2. DO NOT COMMINGLE ASSETS
The same reasons that you should not commingle cash as mentioned above
apply to other assets such as inventory, cars, real estate, ect.
3. DO NOT SIGN OR ENDORSE CORPORATE DOCUMENTS PERSONALLY
Always include the corporate name on all documents and clearly indicate
your corporate title. Otherwise, a court may construe that your signature
indicates the transaction is backed by your personal guarantee, therefore,
risking your personal assets.
4. OPERATE YOUR CORPORATION AUTONOMOUSLY
If you have more than one company, as many entrepreneurs do, you must
operate each separately. Corporate meeting should be held separately
and separate corporate books must be maintained.
5. KEEP PROPER CORPORATE RECORDS
Creditors can challenge the existence of a corporation by showing
that no records or inadequate records were maintained to document
authority for corporate actions. Always maintain complete records
of all director and stockholder meetings.
6. ALWAYS IDENTIFY YOUR BUSINESS AS CORPORATION
Let creditors know that they are dealing with a corporation. This
action alone may discourage personal lawsuits from creditors who may
believe they are dealing with a sole proprietorship or partnership
whose assets are subject to collection of business debts.7. KEEP YOUR
CORPORATION IN GOOD STANDING
A corporation dissolved by the state leaves you with no corporation…and
no corporate protection. You must always:
*Pay all necessary taxes including franchise taxes.
*Never voluntarily dissolve a corporation with debts outstanding that
could automatically be charged against you as the stockholder.
If we can be of any assistance in resolving any questions you may
have with respect to operations of the new company, please do not
hesitate to contact us. Thank you and good luck.