You might have rental properties or even a small business that you run and you have heard that you should start and Limited Liability Company (LLC) or even a S or C Corporation to protect yourself from personal liability for the business you conduct. Sunbiz.org, which is the Florida Department of State website, makes it fairly simple to start either an LLC or a For Profit Corporation with just a few clicks of buttons and payment. Are you now protected? The answer is PROBABLY NOT!
In order for a corporate structure, whether it is LLC or what is known as a c-corp, to protect you, you have to treat the business as being its own entity. If you don’t, someone suing the corporation could ask the Court to “pierce the corporate veil” or, in simpler terms, hold you personally liable for the debts of the corporation.
Piercing the corporate veil involves consideration of a number of things, but the most important is whether there has been a “total or partial disregard of corporate formalities.” The following are an inexhaustive MINIMUM list of things you should definitely do in order to observe the corporate formalities:
- Get a tax identification number for the corporation. This is simple and involves only a few clicks on the irs.gov website;
- Once you have the tax id number, open a bank account under the name of the business;
- Do not pay your personal expenses out of the business bank account. In fact, if you are going to pay yourself a salary, go to a payroll service and make sure you pay yourself a salary just like you would any other employee;
- Every year, hold an annual meeting, even if it is with just yourself, and document the meeting with a sign sheet of minutes. The most simple of these will state the date on which the meeting was conducted, where the meeting was held, you was in attendance, and what was decided. Do this at the time you file your Annual Report with Sunbiz and you can attach your Annual Report as an Exhibit to the meeting minutes, confirming that you have either changed or kept the following the same: Registered Agent; Registered Agent Address; managing member or officers.
- Hire an accountant to prepare a K-1 for the business every year even if you are just an LLC and are going to file the taxes on your personal tax return. If you are a c-corp, you will have a separate tax return for the business.
- Keep the business funded and pay the business creditors rather than take every penny out of the business to pay yourself.
This list is a good start, but you may want to read more about how to protect yourself. Check out these articles: