You may have heard that incorporating your business is the best way to protect your assets including cars, homes, savings accounts and retirement savings and you’re right. If you don’t form a corporation or register your business in some way, your business is nothing more than an extension of your home finances which means that any event which results in a claim on your business assets is also a threat to your family finances.
Forming a corporation isn’t enough, though. For some, after forming a corporation they fail to follow through with the requirements of the corporation. For example, if your bylaws state that you must have two signatures on all checks, you must honor the rules set forth in your bylaws or you run the risk of piercing the “corporate veil.”
If an attorney were gathering evidence against your corporation for a pending lawsuit, they will most likely find areas where the corporate veil had been broken. This would allow them to present a case where your personal assets are at risk.
Here are a four ways to avoid the piercing of your corporation’s corporate veil:
Keep Assets Separate
Don’t pay business debts by writing a personal check. Make an additional investment in to your corporation by writing a check to it and depositing that money. Then, write a check out of your business account. Additionally, don’t remove corporate funds to pay personal debts without signing loan documents or documenting the expense and the immediate reimbursement.
Don’t Mix Credit Cards
If you will pay for some business expenses with a credit card, make sure you have a dedicated card for business expenses. It would be best to have it registered to your business but it doesn’t have to be that way. Don’t pay business debts with your personal card or personal debts with your business card.
Sign as your Business
If you take out a loan for your business or purchase any products or services where they aren’t paid in cash right away, sign your name and write your corporate title next to your signature. This is proof that you aren’t purchasing as an individual but as an agent for a business. This keeps collection agents or others with an interest in your assets from saying that you misrepresented yourself as an individual.
Make it out to your Business
All invoices should be made directly to your business. If any documents are addressed to you personally, request that they reissue the invoice under your business name.
Don’t Be Tardy
All tax returns, incorporation documents or other official correspondence relating to your business must be filed on time. If you’re late even by one day, it may void your corporate structure.
Don’t forget to register your business as one of the first tasks you complete when your new business is formed but when you register as a business you must also act like a business.