Many LLC and corporation owners don’t know that setting up their business entity is only the first step in protecting themselves from personal liability if they are sued. Here are corporate/LLC formalities to maximize liability protection during the life of your business.
- Document important shareholder/member and director meetings.
- For single person LLC or corporations, document important decisions and purchases you make by an Action in Lieu of a Meeting.
- Keep your personal assets separate from your company assets:
- Title company vehicles or expensive assets in the company name.
- Have separate business and personal checking accounts. Commingling funds between the two accounts is the most common way companies get into trouble and leave themselves vulnerable.
- Prepare a buy-sell agreement if you have business partners, that outlines how you will value your company, and/or buy out your partners if one dies, divorces, becomes disabled or disinterested, or how they or third parties will buy you out.
- Have your partners’ spouse and your spouse sign a spousal consent with the buy-sell agreements so you do not end up with your partner’s spouse as your new business partner in the event of a divorce, disability or death.
- Issue physical certificates of stock/membership shares to all owners of the company, and keep an account of the shares in a ledger.
- Classify workers correctly in your company as employees or independent contractors.
- Document personal loans to the company with a promissory note, and schedule regular repayments with interest.
- Borrow money from lenders in the LLC/corporation name if the money is to be used for business purposes. Avoid personally serving as a co-signer or guarantor, if possible.
Keep these formalities in mind to protect you and your business. Nancy Lewellen is an experienced business attorney who can get you into corporate compliance.