Setting up your business as a corporation or a limited liability company (LLC) is a great way to go for most entrepreneurs, since incorporating protects personal assets from business liabilities, helps lower taxes and ensures the longevity of your business.
However, as a recent article at Entrepreneur.com reminds us, there are six situations where a corporation or LLC will not protect your personal assets, including if you:
Provide a personal loan guarantee for the business. Many first-time entrepreneurs are asking to sign personal loan guarantees until the business is viable. If you do so, be aware that you are giving up your limited liability protection for that particular debt.
Sign your own name on a contract. This is a careless mistake that too many entrepreneurs make. Never sign your own name on a contract or purchase agreement; always include the name of the business so it is clear you are signing as an officer of the company.
Use a personal credit card for business expenses. If you use a personal credit card for any business debt, you are personally responsible for that debt.
Break the law. If you break the law, you are no longer protected by your LLC or corporation. This is also applicable if you misrepresent yourself on a loan or credit application.
Incur a malpractice or negligence claim. Doctors, lawyers and others who are potentially open to personal liability litigation through a claim of negligence or malpractice should have a robust professional liability insurance policy to protect against these claims.
Do not keep your corporation or LLC in compliance. Both a corporation and an LLC have formalities that must be followed to keep them in compliance according to state law. If you fail to follow these formalities, you can lose your personal liability protection. This is why we have a regular updating program in place for our business clients, since your needs and the needs of your business will tend to change over time. We offer a service that proactively monitors your business on a regular basis, to ensure you remain in compliance and that your legal protections are always in place if and when you need them.
To learn more about maintaining your business compliance, contact us to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit. We take care of the legalities so you can focus on doing what you do best: building a firm financial future for you and your family.