Use Proper Terminology to Protect Your Personal Assets

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Do you have a corporation or an LLC?  How often do you use the proper name of your company (as it appears in the records of the Secretary of State)?  Do you often shorten your name and omit the “Inc” or “LLC” on your marketing materials and when you answer the phone?

Corporations and limited liability companies are considered to be separate legally from their owners.  This means when the entities are properly formed, maintained and operated, the business owners generally risk only the capital they invested in the business.

If the company does not have enough assets to cover its debts, creditors may look to “pierce the corporate veil” and find the owners personally liable for the debts.

Common ways to pierce the corporate veil are:

  • Intentional fraud by company officers or owners
  • Co-mingling company funds and personal funds
  • Treating the company as the alter-ego of the owners, including co-mingling and using company assets and people for personal ventures
  • Being grossly undercapitalized
  • Failing to file Annual Reports with the Secretary of State
  • Failing for a corporation to hold annual meetings of shareholders and directors.

If you sign contracts as: John Smith, and not John Smith, President of ACME Anvil Company, Inc., you may accidentally be entering into the contract on your own behalf and not on behalf of the company with limited liability.

That improper signature could mean nothing, but it could also be the first sign of alter-ego liability or other lack of corporate formalities that opens the door for personal liability.