Business Owners Need to Follow the Rules to Protect Personal Assets

The shaky economy and mass corporate layoffs of the past several years have led thousands of Americans to start their own businesses. Business owners who have structured their business as a corporation or a limited liability company (LLC) need to follow these legal formalities or risk opening yourself to personal liability if a lawsuit is ever filed against your company.

One of the main reasons to incorporate or form an LLC is to protect personal assets; if your corporation or LLC does not observe the legal formalities that rule the governance of your company, you muddy the legal waters between personal and business assets.

A business attorney can assist business owners with the right corporate structure for their business and ensure you are following the legal requirements for each, including executing a Corporate Shareholder Agreement or LLC Operating Agreement, keeping meticulous records on corporate meetings, drafting by-laws and resolutions, and more.

When a corporation or LLC is not managed under the proper formalities, a court may find business owners in breach of their fiduciary duties since the court would be unable to ascertain if the corporation or LLC is truly separate from the owner and his or her personal assets. If a court finds that the business is not separate – known as “piercing the corporate ceil” – the business owner will not be protected from liability or creditors of the company. In that case, a business owner’s personal and business assets could be seized in a lawsuit.

The best way for you as a business owner to protect personal assets is to consult with an experienced business lawyer to assist with the development of the appropriate documents and by observing the correct corporate formalities for your business.