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5 Keys to Maintaining the Liability Protection of Your LLC or Corporation

Lucere Legal helps small business owners keep their asset protection in place

Smart business owners have their companies organized as a corporation or a limited liability company to protect their personal assets from business liabilities, since these business structures provide what is known as a “liability shield”.

However, this liability shield can be pierced if the business owner doesn’t take the proper steps to protect it.  If you have an LLC or a corporation, be sure you are doing these five important things to preserve your liability protection:

1.  Only use your business for legitimate purposes. If you use your business entity to commit serious misconduct or fraud, it is very likely the court would “pierce the veil” and hold you personally liable for business claims.

2.  Use the legal name of the entity on contracts and business communications.  Business owners should not sign contracts or any important business communications with their personal names.  Use the name of your LLC or Corporation in all business dealings so it is clear to third parties that they are dealing with the business entity and not you personally.

3.  Keep business and personal finances separate.  There should be no comingling of business and personal finances.  Not maintaining separate bank accounts and records for your personal accounts and business accounts is one of the easiest ways to pierce the liability protection.

4.  Follow the rules.  While the rules for an LLC are less formal than those for a corporation, you still need an operating agreement and it is still important to track and document your business decisions.  For a Corporation, the rules are stricter, requiring bylaws, annual meeting minutes, and corporate resolutions.  If you need support with compliance, let us know. We can help.

5.   Ensure the business is adequately capitalized.  If a business entity is under-capitalized and something goes wrong, the court may pierce the liability protection.

To learn more about maintaining the liability protection of your business through skillful business planning, call us today at (612) 206-3701 or fill in our contact form to schedule a small business consultation session.

Image courtesy of Suat Eman / FreeDigitalPhotos.net

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There's a handful of legal topics that business owners should be familiar with, at least on a rudimentary level, to reduce the risk of having something horrible come out of left field.

This book is a legal guide to help you put the most common business legal issues on your radar, with enough information for you to be on the alert for when you may need to get some professional advice.

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Do you have a cabin?

The first generation that buys a cabin enjoys it to the fullest and it’s a magical place where happy memories are made and families go for some much needed respite. Unfortunately, without thoughtful planning, the chances of the cabin staying a place of happiness and tranquility into successive generations is very, very slim.

If you haven’t done the planning in advance and made it legally binding, the family members (and their ex-spouses and new spouses) will have to work every detail out for themselves. If they can’t, what is likely to happen is a lawsuit called an action for partition that forces everyone to sell their interest. This lawsuit is expensive, and the costs of litigation will come out of the proceeds of the sale of the cabin, so to add insult to injury to those who wanted to keep the cabin but couldn’t afford to buy the others out, they are footing part of the legal bills in the lawsuit against them. Ouch!

It’s no wonder that family members stop speaking for years after the cabin conflict is “resolved.” You can’t make family relationships perfect, but you can take away much of the fuel for the family conflict fire. That’s what cabin planning does, and it has the nice side effect of giving you peace of mind now.

That’s why Kimberly wrote The Minnesota Cabin Planning Guide and Workbook, and you can get a free electronic copy of her book on our cabin planning website, or you can find it in many county libraries in Minnesota, or you can get it on amazon.com.

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