One of the major reasons to incorporate your business is to provide your family with the benefit of limited liability; that is, debts of your business do not become your debts or those of your family. But, even if your business is properly incorporated, your failure to preserve and protect its corporate status could expose you and its employees to personal liability.
Always disclose the corporate or limited liability status of your business on all documents, generally by using its legal name, including Incorporated, Company, Inc., LTD or some other designation authorized by its state of incorporation to disclose its corporate status. If you choose to engage in business under an assumed name, trademark, service mark or brand name, it must be properly recorded and the legal corporate name should still be identified on all significant documents, including contracts, purchase orders, advertising, correspondence, e-mails and checks.
All persons entering into contracts or signing documents on behalf of your business, should sign in the name of the business, and include their corporate title; president, manager or some other position, so that anyone doing business with your business or seeing the document will understand that their signature is not personal but only in their representative capacity.
Avoid personal guaranties or providing personal financial information, as it may suggest your intent to use your personal assets or personal liability as a method to obtain credit or that you will be responsible for your business’ debts. If you must guarantee a corporate debt, be sure that it is as limited as possible and cannot be used by an unintended party.
Operating as a corporation does not ensure that officers, directors and employees are free from personal liability, as they can be jointly and severally liable for some claims such as car accidents. Obtaining and maintaining appropriate general liability, director and officer, and other insurance can protect the personal assets and fortunes of owners, agents and employees from such claims.
Taking steps to maintain the limited liability protection of your business is not difficult, but failing to do so can expose you and your family to unlimited liability. Brooks, Tarulis & Tibble, LLC advises numerous business owners on the proper operation of their business. If we can assist you in this regard, please contact me.