18 Smart Ways to Protect
Your Assets from Personal Liability
If you conduct business as a corporation or limited liability company (LLC) you must realize: These types
of business entities may do nothing to protect your personal assets.
Statistically, if you are sued, you're more likely to have to prove the validity of your business entity
and its protective corporate veil than any other issue. What's more, over 50 percent of the time, you will
lose your protection and the court will hold you personally liable.
Are you really at risk? A Gallup survey commissioned by the National Federation of Independent Business,
found that between 1995 and 2000, 24 percent of small businesses either had been sued or were threatened
with court action. Today, it is estimated that one in three small businesses are sued each year.
As if the rising tide of litigation wasn't bad enough, don't forget the IRS. Corporations enjoy many more
deductions and tax benefits than individuals. The IRS requires that all companies play by the rules. If
the IRS comes calling, expect to have to prove that you run your corporation or LLC by the book and keep
corporate formalities.
If you're a small business, you are most at risk. The corporate veil is pierced most often in close
corporations or within corporate groups. In fact, as the number of shareholders decreases, the likelihood
of piercing the corporate veil increases.
Here are "18 Smart Ways to Reduce Your Personal Liability and Protect Your Assets:"
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Smart Way #1: Make sure you set up your business entity properly.
Smart Way #2: Make sure the articles of incorporation or articles of organization are properly filed before you do business.
Smart Way #3: Make sure you keep the business adequately capitalized.
Smart Way #4: Make sure you properly convene and document shareholder/member meetings.
Smart Way #5: Make sure you properly convene and document director/manager meetings.
Smart Way #6: Make sure you hold and document special meetings of both shareholders and directors when you need to address important matters.
Smart Way #7: Make sure the directors/managing members play an active role in deciding important matters such as major capital expenditures and other fiscal matters and document their involvement.
Smart Way #8: Make sure you issue company stock or LLC membership units -- and record those transactions.
Smart Way #9: Make sure you issue stock only to people who intend to be true owners.
Smart Way #10: Make sure you follow the bylaws or operating agreement.
Smart Way #11: Make sure you pay dividends to shareholders.
Smart Way #12: Make sure you file annual reports in the State you are incorporated AND in any State you are doing business as a foreign corporation.
Smart Way #13: Make sure you keep accurate corporate records.
Smart Way #14: Make sure you document loans between the company and shareholders/members.
Smart Way #15: Make sure your business earns a profit.
Smart Way #16: Make sure you use the corporation for proper business purposes.
Smart Way #17: Make sure you carry reasonable insurance on the company that relates to the company's business risks.
Smart Way #18: Change the way you view your company.
16 Costly Mistakes That Cause Courts to Hold You Personally Liable for Your Company's Debts
Costly Mistake #1: Believing that LLCs don't have to follow the same rules as a Corporation -- or that LLC veils have never been pierced.
Costly Mistake #2: Entering into contracts that the company has no possibility of completing -- or while the business is bankrupt.
Costly Mistake #3: Overlapping different business entitles.
Costly Mistake #4: Misrepresenting or misleading other people or companies to believe that your company is one type of business entity when, in fact, it is another type of business entity.
Costly Mistake #5: Identifying a person or company as an owner of your company, when they are not.
Costly Mistake #6: Operating a business only to acquire the debt and liabilities of another business.
Costly Mistake #7: Mixing personal assets or shareholders' funds with the company's assets or funds.
Costly Mistake #8: Siphoning or draining money from the company for your personal use.
Costly Mistake #9: Representing that you are (or will be) personally responsible for the company's liabilities or debt.
Costly Mistake #10: Signing checks without adding your title -- or that you represent the company.
Costly Mistake #11: Losing S corporation status.
Costly Mistake #12: Using the company to intentionally defraud others or to conduct illegal activity.
Costly Mistake #13: Signing a contract -- or entering into an agreement in your personal capacity.
Costly Mistake #14: Negotiating business transactions between the company and a shareholder with a built-in bias or favoritism.
Costly Mistake #15: Issuing orders in a name other than the company's name.
Costly Mistake #16: Using a DBA that you have not registered with the state in which you're doing business.
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