You created a corporation for a reason. Perhaps many reasons. But it is probably safe to say one of the biggest reasons you are going corporate is to obtain the corporate veil of protection from personal liability of business debt and unpaid creditors trying to collect. This is an obviously wise decision. But just because you have a corporation or LLC doesn't mean you can't be held personally liable. The corporate shield can be shattered.
|Corporations and LLC's can protect you from being personally liable for business debt and liabilities.|
Let's take a look at some ways you can maintain your financial safety
9 Do's and Don'ts to Protect your Corporate Veil
- Keep a Corporate Activity Journal
- Keep the Business Separate - It's Business not Personal
- Adequate Initial Capital Investment in new Corporation
- Make Sure the Business Files and Pays Taxes
- Lie about Financial Status
When you're doing business with creditors or investors it may be tempting at times to fudge the exact nature of the company's financial situation. Don't do it. You could be held personally liable for giving false material information to creditors or investors that used that info to make important financial decisions
- Dishonest Marketing and Sales practices
It is often common in some industries to employ questionable sales and marketing practices. Be sure to have ethical sales and operating procedures, as well as safeguards to protect the company against fraudulent employee behavior. Any business function that is performed in a misleading or fraudulent way can come back to bite you. Don't Do It!
- Don't Give Personal Guarantees on Business Loans
If you don't want to be financially liable for company loans then you ought not agree to personally guarantee them. If you have a small company banks will often insist on you being personally liable for the loan. Remember you don't have to agree there is no gun to your head.
- Don't Make Informed Decisions that Leads to Overwhelming Risk Exposure
If you know going through with a business activity will expose the company to extreme risk levels don't go through with it. That prior knowledge can make you liable for any damages.
- Don't Make Illegal Unauthorized Corporate Transactions
If you conduct transactions that are either against company policy and or illegal then you can bet your bottom dollar you will be held liable for the resulting consequences.
We have some other great resources that can help you with your business.
Small Business Management Tips
3 Functions of Every Business - Business Basics