Creating and maintaining a corporate veil

On Behalf of | Jul 30, 2020 | Business & Commercial Law |

Owning a business can put you at risk for lawsuits that individuals do not have to worry about. From the beginning, you need to take steps to safeguard your personal assets.

A corporate veil or shield can do this, but you must actively create the shield and then maintain it to receive its protection.

Choosing your business structure

Business structures include sole proprietorship, general partnership, limited partnership, limited liability company, and various types of corporations. Sole proprietorships and general partnerships do not usually provide any liability protection to the owners. However, LLPs, LLCs and corporations do separate personal from business liability and responsibility.

Keeping financial affairs separate

Although you may have control of your company’s finances, you should not commingle them with your own. Use your company’s bank account and credit lines only for company business, and do not use your own assets as capital for the company.

If you do need to move money from a business account to your own or vice versa, document the transactions as a loan or draw. Careful documentation of business expenses and transactions can serve as proof that no wrongdoing occurred if someone wants to take you to court over a business matter.

Documenting company decisions

You should create a paper trail that shows your company’s decisions and demonstrates its decision-making process. This includes formal meeting minutes and agreements signed by company members or owners. You would then be able to demonstrate in court that the company is an entity separate from you, and it conducts its own affairs.

Avoiding liability

Even if you do everything else right, you can still put yourself at risk. For example, you should avoid signing your name on any document unless you indicate that you are signing as a company representative in your professional role. Also, if you act carelessly or negligently while engaging in company business, a court may hold you personally liable for damages your actions caused.

In the past, New Jersey courts have ruled in favor of companies and rejected corporate veil-piercing claims, making it more difficult for future claims to succeed. However, making a conscious effort to keep all your personal and business affairs separate may save you money and time and protect your company’s image by keeping you out of court in the first place.



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