Avoiding Personal Liability For Your Business’ Liabilities

One very big benefit of operating as a corporation, as opposed to just doing your job individually on your own, is the protection from liability. When and if something goes wrong, and the company is sued, it is the company that is sued–not you, personally. And if a judgment is entered, the company’s assets will be taken, not your personal assets.

Mistakes Business Owners Make

Many business owners make the mistake of starting or operating a business, and assuming that protection from personal liability is absolute. That’s not the case; there are mistakes that many people make that can “pierce the corporate veil,” and allow you, personally, to end up liable for the actions of the company.

Separate Everything

As a general rule, the operative word should be “separate.” The more that you, personally and your company become one, and there cease to be any real difference between the two, the more you lose corporate liability protection.

When someone’s personal affairs or finances become the same as the company’s it’s called commingling, or “alter ego,” where the law sees the company as an extension of you personally–not as a separate legal entity.

Mistakes to Avoid

Here are some mistakes to avoid, to keep your business from being seen as your alter ego, and to keep from being personally liable for company business

Signing agreements – although it is not foolproof, always try to sign company documents with your name, “as (your corporate position or title) of the company.” Additionally, read what you are signing, to make sure there isn’t language in the agreement that could make you personally liable.

Paying bills – Let’s say that the company has a bad month, and can’t pay a bill. You decide to pay that bill out of your personal bank account. Or, let’s say the company does very well–instead of just depositing funds in the company’s bank account, you deposit that money in your personal account–it’s going into your account ultimately anyway, why not just put it directly into your personal account?

These are examples of commingling–the mixing or blurring of company assets and debts, with your own, and you can easily lose corporate protection by doing these types of things.

Be consistent – Whatever the company pays, it should keep paying. But the company shouldn’t play different things every month.

For example, if the company pays for your lunches, that’s fine. But it shouldn’t pay for your lunches 2 days a week, and you pay 3 days a week, or it shouldn’t make your car payment for 2 months and then you personally make the car payment the next 3 months. This inconsistency makes it look like you and your business are the same.

Use resolutions – If you can, try to pass and use corporate resolutions setting forth what the company will pay–especially if the company is paying for an expense, like a car payment, that could be interpreted as your personal expense.

Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954 440-3993 for help with your corporate legal problems.

Sources:

investopedia.com/articles/pf/08/asset-protection-business.asp

corporateresourceguide.com/protection/corporation-liability-protection/