Establishing a business entity–be it an S-Corp, LLC, etc.–is a vital step for most entrepreneurs. Incorporation offers a range of beneficial effects: Protection of personal assets; lower taxes; and ensured longevity for your business.
Provided, of course, that you avoid the six rookie mistakes (as documented in a recent article at Entrepreneur.com) that will land you in a situation in which not even a corporation or LLC will protect your personal assets:
Providing a personal loan guarantee for the business. Here’s the Catch-22 for the first-time entrepreneur: Lacking a solid base of investors, many turn to loaning their personal assets to the company until it is viable. Though it may be necessary and well-worth the risk, be well aware that your limited liability protection for that debt is forfeited.
Signing your own name on a contract. Any signature you make for your company–whether on a contract or a purchase agreement–must never be merely in your own name. This may render a contract unenforceable or put your assets on the line for a purchase. This careless mistake is made by too many entrepreneurs. Always be sure to include the name of the business and sign in your business capacity so it is clear you are signing on behalf of the company.
Using a personal credit card for business expenses. Using your personal credit card for any business debt leaves you personally responsible.
Violating the law. Any violation of the law eliminates the protection afforded you by your LLC or corporation. Misrepresenting yourself or your financial situation on a loan or credit application also counts here.
Incurring a malpractice or negligence claim. Anyone open to personal liability litigation through a claim of negligence or malpractice–doctors, lawyers, and a number of others–must have a robust professional liability insurance policy to protect against these claims.
Failing to keep your corporation or LLC in compliance. State laws lay out specific formalities that must be followed by both corporations and LLCs, and failing to comply to these formalities can lead to the loss of your personal liability protection. To ensure your business is compliant with these regulations, we offer a program for our business clients that includes regularly updating, 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.
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Have you established a corporation before? What obstacles have you surmounted? Leave your story in the comments below!