First and foremost, if you own your business in your name without a separate entity, I highly suggest you think about creating one.
The process of creating your separate legal entity is simple, relatively inexpensive, and provide critical advantages for business owners.
LLCs and Corporations are distinct and independent entities separate from the business owner. This means that individuals are not typically held personally liable for the debts and obligations of the company. However, if you fail to treat your separate entity as actually separate, this limited liability can be removed, and your personal assets may be vulnerable to lawsuits, creditors, and the like.
If you have taken the steps to create your business entity (great job!), below are two things you must do to maintain the limited liability aspect of incorporation. Otherwise, your personal assets may be at stake.
- Separate your finances
- Do not comingle business funds with personal funds or vice versa.
- Set up a separate bank account for your business, and use a separate debit/credit card.
- Keep separate financial books. Accurate and detailed book keeping on behalf of your business is key for evidencing the business is separate from you as an owner.
- Remember, an ounce of prevention is worth a pound of cure.
- If you are tempted to buy that new car under the color of your business so you can write it off as a business expense, don’t. It’s not worth it!
- Keep your company adequately funded
- One way to lose your limited liability is if you fail to keep your business properly funded. This may be evidence that you are comingling funds between your business and your personal life. So please adequately fund your company (and adhere to point 1).
If you have questions on the article above, please contact one of our experienced Sioux City attorneys, Sioux Falls attorneys, or Omaha attorneys. For more information on business practices or law, visit our Deal Maker blog today!