Ten Tips for Maintaining Your Company’s Separate Identity to Avoid Personal Liability Problems
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1. File timely annual reports with the Secretary of State.
2. Operate using the proper name of the company. If the company uses a fictitious name (a “d/b/a” name), be sure that it is registered with the proper authorities, such as the Secretary of State and county registries.
3. Be sure that the company’s clients, customers, vendors and other third parties know that they’re dealing with the company, and not you personally, in contracts, on invoices, etc.
4. When signing a contract on behalf of the company, be sure that the small print doesn’t hold you personally liable, and be sure to indicate that you’re signing not personally, but as an officer, manager, partner, etc.
5. Don’t mix business and personal finances. Don’t pay personal expenses from the company’s account. Document all payments from you to the company as capital contributions or loans, and from the company to you as compensation, dividends, etc.
6. Be sure that your company’s auto insurance covers to cover potential liability when your employees use their personal vehicles for your business purposes.
7. Be sure that company retirement plans and other benefits plans are properly maintained and that all required
8. Have the company’s CPA send an letter to the company’s attorney each year letting the attorney know what tax-related items should be documented in the company records for tax purposes, including, for example, owners’ salary and bonuses, loans to owners, capital contributions, major sales and purchases of capital assets, etc.
9. Hold annual meetings and document the company’s major activities for the year in the minutes of the meeting.
10. If equipment and real estate are owned separately from the operating business (as they should be, when practical), be sure that arm’s-length leases are in place.