Overview of Maintaining Corporate Protection
Operating a business through a corporation does not suggest that corporate
creditors won't attempt to sue you personally to collect a corporate
debt or to hold you personally responsible for some corporate mishap.
Corporate creditors try to pierce the corporate veil to claim their owners'
personal assets. Usually the claim is that the owners are alter egos of
their corporation. They can succeed if the owner fails to follow basic
It is not difficult to correctly operate a corporation — or any
other legal entity. The one goal is to manage your entity independently
from your personal finances or your corporate creditors might succeed
in claiming that you and your corporation are one and the same. You then
lose corporate protection. How can you avoid this?
— Don't commingle assets: Operate your corporation as a separate entity.
Separate your personal finances in every respect. For example, document
assets transferred between yourself and your corporation on both your
personal and corporate records. Also document financial transactions between
affiliated corporations or other entities.
— Disclose your corporate status and sign as a corporate agent: When you
operate as a corporation, your legal documents should say so. Disclose
your corporate name and title on all contracts and documents. Sign all
documents as an officer or agent of the corporation.
— Operate corporations autonomously: If you own multiple entities have
the officers or directors of the related corporations occupy different
positions, conduct separate corporate meetings and maintain separate corporate books.
— Keep good corporate records: Business creditors pierce corporate protection
when their records don't properly document key corporate actions.
Record major director and shareholder votes. Inexpensive software can
help you instantly prepare good corporate records without a lawyer.
— Never voluntarily dissolve your corporation: This will cause you to
lose your corporate protection. Pay corporate taxes and franchise fees.
Keep your corporation in good standing. Do not voluntarily dissolve your
corporation if it has outstanding debts as these corporate debts will
then automatically become personal obligations to you as its corporate
stockholder. Observe corporate formalities. Does your corporation have
a business address? Telephone number? Do cancelled corporate checks show
that your corporation pays it's own expenses? Does your corporation
have the necessary business licenses? Checking and bank accounts? Each
compliance point establishes your corporation as a legitimate and separate
entity. Creditors trying to pierce the corporate veil on the claim that
the corporation is only a stockholder's alter ego have a difficult
burden as courts only reluctantly dismiss a corporation's liability
protection unless its owners flagrantly ignore these and other corporate
formalities. A business creditor's lawsuit against the corporate owner
is usually only an effort by the creditor to force the business owner
to defend the lawsuit or settle.
YES, YOU CAN LOSE EVERYTHING!
You may think that your wealth is safe and that you don't need protection.
But don't delude yourself and accept reality — for every 60
minutes you spend making money, spend 60 seconds thinking about how to