Many small business owners are using the limited liability corporate structure in order to limit their personal liability. Once a business is incorporated, it exists as a separate legal entity. Therefore, generally the corporation and not the business owner will be responsible for the debts and liabilities of the entity. The commonly called, “corporate shield” separates your personal assets from the assets of the business.
However, in order for the shield to properly defend your personal assets, you must ensure your LLC remains in good standing. Below are several practices you should implement to keep your corporate shield in place.
1. Do not comingle your personal and business finances. Maintain separate bank accounts and credit cards for your business. Do not use corporate funds for personal expenditures as this may place your personal assets at risk.
2. File state required annual reports. Delinquent filings can result in penalties, late fees or even suspension or dissolution of your corporation.
3. Record any changes in the Articles of Incorporation. Such changes as company address, name change, authorization of additional shares, changes in the board members, etc. should be formalized in Articles of Amendment and submitted to the state.
4. Make sure your business is in compliance with the requirements in all states in which you operate. If you are doing business in a state other than your state of incorporation, you will need to qualify and register as a foreign entity and depending on your business type may require licenses or permits in order to legally operate.
5. Timely file your tax returns.
Many well intending business owners do not follow these steps to protect themselves. Business owners often spread themselves very thin taking on a great deal of responsibility in order to ensure their success. These administrative tasks must be part of the priority to avoid costly negative consequences.
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