Four Tips to Maintain the Legal Protection Provided by Business Entities

June 3rd, 2014 - Bryan L. Page

Many businesses are set up as corporations or limited liability companies (LLCs). The main legal reason for operating a business as a corporation or an LLC is simple. These types of business entities shield the owners of the business from liabilities incurred by the business. Meaning, the owners are generally not responsible for the debts of the business. This limited liability makes organizing a business as a corporation or LLC attractive.

However, the legal shield from liability can be lost if certain requirements are not followed. Loss of limited liability is often referred to as “piercing the corporate veil.” If the corporate veil is pierce, the personal assets of the owners of the business may be at risk.

These four tips are important to follow in order to maintain the legal shield offered by business entities.

Do Not Mix Assets.

Keep the assets of the business separate from the personal assets of the business. This most often means maintaining separate bank accounts and accounting records for the business. Pay personal expenses with personal funds and business expenses with business funds. Do not co-mingle business funds and personal funds. A qualified accountant can help a business set up proper bookkeeping and accounting systems. If you start the business with personal assets, transfer those assets into the name of the business and have that transfer properly and legally documented. A lawyer can help with the transfer and documentation.

Hold Board or Membership Meetings.

Hold regular board meetings and annual shareholder meetings as required by law if the business is a corporation. Hold regular membership meetings as required if the business is an LLC. Minutes of the meetings should be kept. Even if the business only has one owner, these meetings should still be held and documented by meeting minutes. An attorney can assist with forms.

Keep Up Registration.

Annual registration is required for business entities. Registration is maintained by the Washington Secretary of State’s office. Lapse of the registration could result in the corporation or LLC being dissolved.

Business Name.

Conduct business in the name of the corporation or LLC. Make sure letterhead, signage, etc. notifies customers and suppliers the business is a corporation or LLC. Do not personally sign contracts in your individual name. Only sign contracts in the name of the business, making sure to identify it as a corporation or LLC. And make sure the person signing is signing with their proper business-related title (i.e. “President”, “Vice-President”, “Member”, “Manager”, etc.).

These four tips should be constantly followed by business owners. Meeting these requirements should be second nature. And following these tips will help ensure the personal assets of the business’ owners are protected.

Disclaimer: This article and blog are intended to inform the reader of general legal principles applicable to the subject area. They are not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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