Keep Your Corporate Veil from Piercing
This Wikipedia entry explains:
"The corporate law concept of piercing (lifting) the corporate veil describes a legal decision where a shareholder of a corporation is held personally liable for the debts or liabilities of the corporation despite the general principle that those persons are immune from suits in contract or tort that otherwise would hold only the corporation liable. This doctrine is also known as 'disregarding the corporate entity'."
This article, Determining Your Company's Legal Structure, contains a good overview of the options for the legal structure of your business and the following tips for avoiding "veil piercing" claims:
Be sure that you always conduct business through and in the name of your entity rather than in your own name (unless you are a sole proprietor). Failure to follow the rules for the entity allows creditors to try to deny you liability protection because you did not really conduct business as an entity.Found via this Kauffman eVenturing post.
Always have the entity adopt resolutions to authorize action, even if there is only a "ratification" after the fact.
Use the proper form of entity signature by always signing documents in representative capacity as an agent of your entity: "XYZ LLC, by John Q. Smith, Managing Member."
Use proper signs, advertisements and business cards showing an entity rather than an individual (e.g., "John Smith, President, ABC, Inc." rather than "John Smith, Owner/Proprietor").
Use proper fictitious name filings.
Avoid commingling your business and personal funds in the same bank account.
Pay business and personal bills from separate accounts.
Maintain separate personal and business bank accounts.
Prepare notes and other documentation of all loans between the business and its owners.
Your entity must have a minimum capitalization reasonably adequate for the business to be conducted. Insurance counts.
Don't sign contracts or make commitments for the business until you have filed the correct papers to organize it, since you will be personally liable. The liability shield of the corporation or LLC does not exist until the entity exists through a filing in the state capital.
