{"id":130,"date":"2016-02-16T21:11:15","date_gmt":"2016-02-16T21:11:15","guid":{"rendered":"http:\/\/marcusboxerman.com\/blog\/?p=130"},"modified":"2016-03-22T19:07:12","modified_gmt":"2016-03-22T19:07:12","slug":"limited-liability-is-not-limitless","status":"publish","type":"post","link":"https:\/\/marcusboxerman.com\/blog\/limited-liability-is-not-limitless\/","title":{"rendered":"A Warning to Business Owners: Your Limited Liability Is Not Limitless"},"content":{"rendered":"

\"limitedLimited liability shields shareholders of corporations and members of limited liability companies from personal liability for company debts.\u00a0 The companies and their owners are treated as distinct legal entities, each responsible for only their own debts.<\/p>\n

Limited liability, however, is not limitless. There are exceptions.<\/p>\n

In some circumstances, courts will \u201cpierce the veil\u201d of your entity, destroying the shield of limited liability.\u00a0 Observing certain formalities demonstrates to creditors and courts the distinction between your company and its owners\u2014showing that your company is a legitimate business separate and apart from you. \u00a0To protect yourself before creditors seek to hold you personally liable for company debts, follow our suggestions below.<\/p>\n

Adequately Capitalize\u2014or Fund\u2014Your Company.<\/strong>\u00a0 <\/strong>Companies have bills to pay.\u00a0 When yours has enough money to meet its regular obligations, courts are more likely to see it as a separate entity and less likely to see your company as just a shell created to protect you from liability.\u00a0 Courts measure adequate capitalization at the time you form your company, and companies may become undercapitalized later for many legitimate reasons.\u00a0 It\u2019s smart to keep sufficient funds to pay company bills because business owners may be found personally liable if they withdraw amounts from the business that render it insolvent.<\/p>\n

Maintain Separate Bank Accounts.<\/strong>\u00a0 Always keep your and your spouse\u2019s personal assets separate from the company\u2019s by maintaining separate bank accounts.\u00a0 Handle all official business through the company account and never<\/em> commingle company and personal monies.\u00a0 Remember, moreover, that while distributing dividends and paying salaries from the company\u2019s account is perfectly fine, never directly withdraw from the company\u2019s account for personal purposes and do not charge personal expenses on a company credit card.\u00a0 Lastly, any deposits of your personal funds to the company should be documented as a loan to avoid commingling.<\/p>\n

Keep Your Personal Affairs Separate from Your Company<\/strong>.\u00a0 <\/strong>Know when you\u2019re acting as an individual as opposed to a representative of your business, and make sure clients, customers and creditors know too.\u00a0 Be sure to use your exact legal company name when conducting business with third parties.\u00a0 Further, when signing a contract, loan application, or vendor or credit agreement, always write your official company title, not just your name, to make it clear that you are signing in your official capacity, not personally. \u00a0And be sure to always include the entity designation \u201cInc.\u201d or \u201cLLC.\u201d<\/p>\n

Keep at Arm\u2019s Length.\u00a0<\/strong> Ensure that courts see a distinction between you and your business by keeping at arm\u2019s length during all transactions.\u00a0 To do this, when conducting transactions between the company and its owners, observe the same formalities and create the same documentation you would for a third-party business deal.<\/p>\n

Keep Your Companies Separate from Each Other.\u00a0<\/strong> When you own multiple companies, to prevent one company from becoming liable for the debts of another company you must keep each company\u2019s affairs separate from your other companies.\u00a0 Treat each company as a separate and distinct entity and conduct all transactions between your businesses at arm\u2019s length.\u00a0 Never commingle company funds, do not pay one company\u2019s bills from another company\u2019s account (unless it\u2019s documented as a loan), keep separate records and be clear about which company you represent in any dealings with clients, customers and creditors.<\/p>\n

Observe Corporate Formalities.<\/strong>\u00a0 <\/strong>Make sure your company looks like a real business.\u00a0 Corporations should issue stock, adopt company bylaws, elect officers and board members, hold annual meetings, keep annual minutes and maintain company books and records.\u00a0 These formalities may seem trivial when you\u2019re running a small operation, but observing them makes a big difference in the eyes of a court.\u00a0 While LLCs are not required to follow many formalities by law, it is important to observe at least a few to maintain limited liability status.\u00a0 Every LLC needs a clear operating agreement along with well-maintained company books and records.\u00a0 LLCs should also hold formal meetings and keep minutes when making important business decisions such as changes in ownership.<\/p>\n

Find out how to maintain the appropriate degree of separation between your personal interests and those of your business by contacting us at (312) 216-2720 or info@marcusboxerman.com<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Limited liability shields shareholders of corporations and members of limited liability companies from personal liability for company debts.\u00a0 The companies and their owners are treated as distinct legal entities, each responsible for only their own debts. 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