When you set up a limited liability company (LLC) or a corporation, you’re planning to take advantage of the “corporate shield” to prevent personal liability if something goes wrong in your business.
Do you toss a valuable tool in a corner and let it collect dust? Or do you keep it functional? Because a corporate shield only protects if you use it correctly.
Unfortunately, some business owners set up an entity as a liability shield yet don’t maintain it.
Update legal paperwork to reflect who owns your business and what your company is actually doing now versus what it did when you set up the entity.
Chances are you’re failing to observe corporate formalities by having the right business contracts and other legal docs in place to show you’re actually running the entity as a corporation or LLC instead of as a sole proprietorship or partnership.
Why is that dangerous?
Because this error makes it easy to pierce the corporate veil and hold you personally liable for breaking the law if there’s a lawsuit or the government comes after you.
Perhaps the most common mistake is failing to comply with state requirements. For example, timely filing corporate franchise tax reports even if you don’t owe any tax. Failing to file can mean the state terminates your entity. You could be mistakenly operating a business as a corporation or LLC after the entity no longer exists!
How do you fix this?
Have an experienced business transactional attorney review your corporate paperwork, update it, and provide you with a simple plan to follow going forward. So you can ensure your business entity properly functions as a liability shield.