Many business owners incorporate because they believe it will protect their personal assets if they get sued. In fact, many business owners invest most of their time and energy on the development of their businesses and tend to forget about following their corporate protocols in order to maintain the protection those protocols were intended for in the first place. Unfortunately, not following corporate protocols can break that shield, and the corporation can be subject to the piercing of the corporate veil.
Protecting your assets is an ongoing process in your daily business operation. In many circumstances, business owners find themselves being asked to personally guarantee a loan, payment, or business note. Banks do not regularly approve a loan if a personal guarantee is not signed.
Therefore, you should be more attentive and cognizant of the way you operate and conduct your business. Even though you, as a shareholder of your own corporation or member of your LLC, may not be responsible for the debts of the corporation, there is nothing to prevent someone from suing you personally for actions you performed.
For instance, officers and directors may be held personally liable for corporate checks issued against insufficient funds and the corporate veil can be pierced if:
>Shareholders or members disregard the corporate rules and protocols
>Shareholders or members disregard the corporate entity
>Shareholders or members use the corporation to evade a statutory, contractual, or tort responsibility
>The corporation is used to hinder, delay, or defraud creditors
>A fraud would result if the corporate structure were allowed to shield shareholders from liability
>Shareholders have used it as a sham or to defeat a public convenience, to justify wrong, protect fraud, or defend a crime
The best practice to maintain the protection of your assets is to stay vigilant of what you do and how you run your business on a daily basis. Organization, separation of books, and keeping books up-to-date is a good start.
Note: A previous version of this post was published on our blog on 3/20/15. This post has been updated as of 8/14/19.
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Disclaimer: Nothing in relation to the enclosed information should be construed and or considered as legal advice for any individual, entity, case, or situation. The following information is prepared for advertisement use only. The information is intended ONLY to be general and should not be relied upon for any specific situation. For legal advice on your specific situation, we encourage you to consult an attorney experienced in the area of Immigration Law.