Corporate Formalities – Why Business Owners Must Keep Personal Lives Separate

April 27, 2011

Many people form corporations because they heard that it’s important.  It will protect you from liability…  It will make your tax situation better…  There are a lot of reasons your lawyer, your accountant, or even your friends might recommend that you incorporate or form an LLC.  Liability protection is one of the main reasons I encourage my clients to formalize their business entity structure.

But having an LLC, a C-corp, or an S-corp is not a magic cloak that protects you from liability.  If you don’t follow corporate formalities as the owner, someone suing you could potentially attack your personal assets as well.  There are many reasons a court might decide to “pierce the corporate veil” to allow someone to sue the owner individually.  Maybe you didn’t keep minutes, maybe you used the company assets like they were your own, or maybe your business was bankrupt from the start.

If you haven’t already done so, consider consulting a lawyer to ensure that you are following proper corporate formalities.  It would be a shame to go to all the work and expense of creating and maintaining a corporation, only to be personally liable because you failed to follow some important step of keeping your corporation and personal lives separate.  A good attorney can help you analyze your own circumstances and help to limit your liability.

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