What you are referring to is called "corporate formalities". These same concepts exist with regards to LLC's. For instance: You must have those officers which the state statute requires (usually president and secretary but some states require others), you must make those filings which the state statute requires, you must properly finance the company, you must reasonably insure the company, you must follow appropriate accounting procedures for the company, you must adhere to your own bylaws - articles of organization or other controlling documents, etc.
The bottom line is that the more that you do to treat the company as an independent entity the less likely that someone can "pierce the corporate veil." The more often that you treat the company like an empty shell or as something owned and controlled solely for your benefit, the more likely it is that a creditor can reach beyond the company and attach to your assets. Yet, I think the most commonly overlooked liability is the dreaded "personal guarantee". Until your company has built up sufficient credit history of its own, it is likely that you will be asked to guarantee the liabilities of your company. When you purchase on credit or if you take out a loan, it is quite likely that you will be asked and/or required to sign a personal guarantee regardless of the structure of your company. If you sign such a document, you may be held personally liable for the underlying debt EVEN IF the company is a limited liability entity (such as a LLC or a S-Corp). Be CAREFUL, some of these guarantees allow the creditor to seek payment from YOU FIRST instead of even chasing the company! So, keep in mind that one of the biggest reasons for going with a limited liability entity early-on is NOT to limit your liability to creditors (they probably will reach you through personal guarantees). The reason to go with limited liability from the start is to limit your liability in "tort" (meaning when you or someone that works for you causes someone else to be hurt). Also remember that torts happen outside of the company AND inside of the company. I'd say at least half of the calls that I'm fielding these days come from people who have recently been laid-off from their employers and now they are suing their employers for some sort of tort. (wrongful discharge, employment discrimination, sexual harassment, etc.) - Larry -----Original Message----- From: [email protected] [mailto:[email protected]] On Behalf Of RickG Sent: Wednesday, June 03, 2009 11:29 AM To: WISPA General List Subject: Re: [WISPA] Quesiton on Funding / Financing / Capital Availability Apparently, "meeting minutes" are one of the differences between an LLC & Corporation. I do my "minutes" for the "annual meeting". No biggie, but considering changing over to an LLC. -RickG On Wed, Jun 3, 2009 at 6:06 AM, George Rogato <[email protected]> wrote: > Yeah, my accountant told me a story about one of his un named clients > who was previously part of a corp . Turns out there was a lawsuit > against a corporation that had filed for bk protection a couple years > earlier. > > The person filing the lawsuit wanted to see the corporate minutes for > the now defunct corporation to see if they were done on a regular basis. > > What they were after is, was it a real corporation that held directors > meetings on a regular basis and kept minutes. > > if not, then the corporation would in fact be considered an illegal > corporation and the shareholders would then be considered sole > proprietors and the corporations bk would be over turned, leaving them > open to that lawsuit. More so than exposing the share holders to that > type of liability, the share holders, now sole proprietor or partners > would have also filed false tax returns and would be subject to all > those unpaid taxes and penalties interest etc. > > A can of worms indeed, when not done right. > > > > Travis Johnson wrote: >> I understand the corporate structure and how it works. I also know that >> if you follow all the proper corporate bylaws, they can NOT break the >> corporate barrier. Yes, they will try and list each person individually, >> but if you have a good attorney, that is a simple motion to get the >> individuals removed (been there, done that). >> >> Travis >> Microserv >> >> Marlon K. Schafer wrote: >>> It can be done a lot cheaper. But we work hard to do it right not cheap these days. >>> >>> And the corporate veil isn't as strong as it used to be. If your company screws up the officers (that's you) will be named on any suit these days too. >>> >>> marlon >>> >>> ----- Original Message ----- >>> From: Travis Johnson >>> To: WISPA General List >>> Sent: Monday, May 25, 2009 9:53 AM >>> Subject: Re: [WISPA] Quesiton on Funding / Financing / Capital Availability >>> >>> >>> Huh? We incorporated in 1997 and I think total cost was less than $500. How do you ever expect to get away from having to do personal guarantees if you don't operate like a "real" business? >>> >>> Travis >>> Microserv >>> >>> Marlon K. Schafer wrote: >>> One more thing. I don't agree with your definitions per se'. >>> >>> We all have businesses. A proprietorship is a TYPE of business. We are a >>> proprietorship because I'm not incorporated (incorporating is over rated and >>> expensive to do right). I'm still a business though.... >>> >>> http://en.wikipedia.org/wiki/Business >>> >>> http://en.wikipedia.org/wiki/Sole_proprietorship >>> >>> http://en.wikipedia.org/wiki/Asset >>> >>> marlon >>> >>> ----- Original Message ----- >>> From: "Charles Wu" <[email protected]> >>> To: "WISPA General List" <[email protected]> >>> Sent: Sunday, May 24, 2009 10:03 PM >>> Subject: Re: [WISPA] Quesiton on Funding / Financing / Capital Availability >>> >>> >>> Hi Marlon, >>> >>> I think it's appropriate to make a few definitions and distinctions on >>> things so everyone is on the same page >>> >>> Specifically, for purposes of making my point, I define >>> >>> Proprietorship: A commercial activity engaged in as a means of livelihood >>> or profit >>> >>> Business: A unique system of processes and procedures that documents and >>> codifies a specific method of proprietorship >>> >>> Asset: cash, inventory, equipment, infrastructure, customer contracts, >>> brand, marketing, etc >>> >>> Grin. Sure it is. That's what a LOT of small business people do. It's >>> also kind of common for doctors, dentists, plumbers etc.... Sometimes it >>> sucks, >>> Now, everything you stated above is just a method of proprietorship, and >>> in most cases, from a sale perspective, a proprietorships isn't worth >>> anything more than the depreciated value of its assets >>> >>> Say you were buying out the local plumber's office -- what would he have >>> of value? His truck? Some old tools? A customer list / brand perhaps >>> (but the reality of things is that customers do business with him because >>> of him, and if you bought him out and he moved out of town, those >>> customers would probably go back to being on the open market) >>> >>> Now, in comparing the WISP 'proprietorship' vs. the plumber, it's worth >>> noting that the WISP is somewhat unique in that it results in the creation >>> of an independent asset that holds onto a lot of value (e.g., the >>> recurring revenue and everything that goes to support it); in many ways, >>> this is akin to real-estate >>> >>> Not >>> everyone out there even wants to get that big (if I had a nickle for every >>> business owner that's told me the most fun they had and the most money >>> they >>> made was when it was just them, no employees......) But then again, >>> that's >>> one of the really cool things about this buisness, it's big enough and >>> flexible enough to allow many different business models and operator >>> dreams >>> to bear fuit! >>> True...and you have the added benefit of building an asset that has value >>> (be happy we're not plumbers =) >>> >>> -Charles >>> >>> >>> >>> >>> >>> ---------------------------------------------------------------------------- ---- >>> WISPA Wants You! Join today! >>> http://signup.wispa.org/ >>> ---------------------------------------------------------------------------- ---- >>> >>> WISPA Wireless List: [email protected] >>> >>> Subscribe/Unsubscribe: >>> http://lists.wispa.org/mailman/listinfo/wireless >>> >>> Archives: http://lists.wispa.org/pipermail/wireless/ >>> >>> >>> >>> ---------------------------------------------------------------------------- ---- >>> WISPA Wants You! 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