Many business owners choose a limited liability format to protect their private assets from potentially unfavorable lawsuit judgments. As the name suggests, a Limited Liability Corporation, or LLC, does not offer blanket protection. There are times when the court may pierce the corporate veil and assign personal liability to business owners whom they find guilty of wrongdoing. These are some ways to prevent that from happening.

Register Your Business

The first step for establishing a legitimate business entity involves registering both its formal and public name with the Secretary of State. You will need to register separately in each state where your business operates.

Create Formal Documents

Some states require LLCs to hold annual stakeholder meetings. It is necessary to take minutes in case you need to prove that this meeting occurred. Organizational documents, including an operating agreement and articles of incorporation and bylaws, also establish your business’s legitimacy.

Separate Finances

Some business owners make the mistake of mixing their personal and business finances. Paying personal expenses with a business credit card or listing personal assets as business deductions on tax forms are some practices that can make a company vulnerable to corporate veil piercing. The best way to avoid this is to maintain separate bank and credit accounts and keep a ledger of all profits and expenses.

Justify Capitalization

You may need to acquire a bank or private loan to help establish your business or achieve its goals. Be sure to maintain an accurate record detailing how you use these funds and how they help advance your business. There are no circumstances that allow you to use business loans for personal expenses, and doing so is considered a fraudulent activity that justifies piercing the corporate veil.

Maintain a Public Identity

Establish all vendor accounts and utility bills in your business’s name.  All outgoing invoices, business cards, literature and signage should prominently feature your business name and identification.

File Taxes on Time

Paying taxes is non-negotiable, and all businesses should take them into account when establishing spending budgets. Setting aside funds for business tax payments, including employee taxes, will ensure timely filings and help avoid late penalties. Paying optional expenses such as stakeholder dividends is a violation of tax law that may lead to the corporate veil’s piercing.

Every business is vulnerable to some liability, but working with a business lawyer in Wilkes-Barre, PA, like from Hoegen & Associates, P.C., can help you establish protocols to protect your corporate veil.