Feedback on Protecting Your Business

First of all, I would like to thank Christine for her comments. If you haven't read them, please go the comments section of Marketing 201. She makes some important points.

Greg Bevington, a partner in the law firm of Bootay and Bevington, sent me a write-up on an area that he feels is very important when it comes to protection. It contains some excellent information which I think every business owner needs to follow. Here is what Greg wrote.

“Piercing the Corporate Veil” – Forming a corporate entity is only the first step in personal asset protection. Sole proprietors’ and/or partnerships’ personal assets and business assets are one in the same in the eyes of the law when it comes to executing a judgment. Obviously, that is a common reason most business owners choose to form a separate entity such as a corporation, limited liability company, limited partnership, or some variation of the previously mentioned forms. This is a smart first step for the business owner, but personal asset protection does not continue automatically. Business owner beware!

It is critical that the business owner who has formally set up his entity continues to act as a formal entity. In its simplest form, a legal “person” can be created in the following ways: an American citizen is born and issued a Federal Social Security number, a person passes away and the “Estate” is issued a tax identification number, or a business entity is created and the IRS issues a Taxpayer Identification Number for that entity. I tell my clients to view the entity as a completely separate “person”, which it in fact is, with an independent set of rules which must be strictly followed. If the rules of the business entity are not followed, a judgment creditor can “pierce the corporate veil” and attack personal assets owned by the business owners. “Piercing the corporate veil” is a legal term used to describe an action to have the corporation set aside for purposes of litigation such that the personal liability attaches, and personal assets can be reached. Aaron Lawson, Piercing the Corporate Veil , Expertlaw.com, August , 2004. Different degrees of ownership may be subject to different degrees of liability, but that is a more complex topic for another day. In general, a formal business entity receives personal asset protection as long as the asset follows its formal corporate procedures, is properly capitalized, and is not a sham company with a purpose only to advance individual interests.

In general, a business entity’s owners will receive personal liability protection when it follows the rules set forth by the entity as stated above. For instance, it is necessary to have a set of by-laws or its equivalent, to have annual shareholder meetings, elect a board of directors or managers, have corporate resolutions passed and records of such kept in minutes for corporate activities such as entering into contracts or buying and selling assets, keep business checking/banking accounts separate from personal accounts (ie, do not commingle funds), or perform any other corporate formality procedure required. These tasks can be easily accomplished by keeping updated minutes.

The above has been written in a general format and is not specific to any particular state or territory in the United States and can vary on the type of business entity created and operating. For more information about business planning and personal asset protection in the Commonwealth of Pennsylvania, please contact Greg Bevington, Esq. of Bootay & Bevington, LLP at 412-650-5940 or email gregbevington@gmail.com.

Once again, thanks to Greg Bevington for providing some valuable information. I welcome all comments on any business subject. If you enjoy reading this blog and feel that someone else could benefit from the information, please pass on the name our our site.