Establish Your Corporation as a Separate Entity for Corporate Protection

Operating your business as a corporation or Limited Liability Company (LLC) won't guarantee that a corporate creditor won't sue you personally to collect a corporate debt. Corporate creditors oftentimes sue its corporate officers and stockholders.

Corporate creditors who try to pierce the corporate veil usually argue that their owners are alter-egos of their corporations. If you are that corporate owner, they'll succeed unless you follow basic corporate formalities. Correctly operate your corporation or any other legal entity.

Operate your entity independent of yourself individually, or any other entity. If a corporate creditor can successfully argue that you and your corporation function as one, you could lose your corporate protection.

Document asset transfers between you and your corporation, as well as transactions between related companies. If you operate as a corporation or LLC, your legal documents should say so. Put your corporate name and title alongside your signature on all documents. If you own multiple entities, have the officers and directors of the related corporations hold different positions, conduct separate corporate meetings, and maintain separate corporate books.

Recording major director and shareholder actions is also important. You should not voluntarily dissolve your corporation if it has outstanding debts. These corporate debts then become your personal obligations.

Observe every corporate formality. Ensure that your corporation has its own:

  • Business address

  • Telephone number

  • Expenses

  • Necessary business licenses

  • Checking and bank accounts

Each point establishes your corporation as a separate entity.

Related links: