In order for shareholders or members of a corporation or LLC to enjoy protection from personal liability for the company’s debts, obligations and other legal liabilities, the following principles must be followed:
Adequate Capitalization and Funding of the Company: A company must be adequately funded, with amounts sufficient to operate the company and pay its regular bills. Adequate insurance coverage may also be considered.
Adequate Corporate Formalities: A company must hold regular meetings, keep accurate company records and have functioning officers/directors if such are appointed.
Treatment of Company as Separate Business Entity: Business owners cannot merely use the company as a “façade” for personal dealings. Co-mingling of business and personals funds is prohibited and the owner cannot treat the assets as his/her personal property. Relationships with related companies must also be handled in an “arm’s length” fashion.
No Improper Purpose or Reckless Disregard for Rights of Others: A business entity cannot be abused to infringe the rights of others and maintain limited liability protection.
Showing posts with label Avoiding Liability. Show all posts
Showing posts with label Avoiding Liability. Show all posts
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