On July 17, 2014
You likely incorporated your business because you wanted to avoid personal liability for the debts and liabilities of your business. If you had a major incident involving the company, or were sued as a defendant in a significant litigation matter, you would want to do everything you could to avoid having your personal assets exposed to those potential liabilities.
In our experience, most small businesses believe that once they have incorporated their company, they have taken the last step to protect their personal assets. In actuality, this is only the first step they need to take to keep their “corporate veil” in tact.
The corporate veil is the legal separation between the corporation and the Shareholders that own it. While it is true that a corporation provides limited liability to its owners, this is only true if a corporation continues to act like a corporation and maintains the required corporate formalities that must be followed in order to enjoy this protection. Otherwise, a creditor (including the IRS) can “pierce the corporate veil” and seek to recover from the shareholders personally.
To learn more about this topic, and to know how to better discuss with your counsel how you might better maintain your corporation or limited liability company, download our guide to Maintaining Your Corporate Protection.