“Ask Your Attorney” Column
About Protecting Your Personal Assets From Business Claims
Dear Counselor: My wife and I wondered what is the best way to protect personal assets, such as our home and savings accounts, from suits that arise from our business activities ? For example, if there was an accident involving one of the machines we run, and there is a suit, can the injured person take our home and savings? What does “piercing the corporate veil” mean?
Dear Client: If you own and operate your business personally, then you are personally responsible for everything. But if your business is set up as a corporation, or a limited liability company, its identity is separate from you. As long as you operate your business entity in accordance with the law, and not as your own “alter ego,” your personal assets would not ordinarily be exposed to debts of the business, or claims of people who are injured during, or as the result of, business operations. Being a stockholder of a corporation, or a member of an LLC, does not automatically make a person personally liable for its debts and liabilities. The concept of “piercing the corporate veil” means that the business owner has not honored the distinction between the business and him or herself, and has not kept up the formalities of maintaining proper company records, or keeping separate banking accounts. Although piercing the corporate veil is most often hard to prove, if you write checks for personal expenses out of the business checking account, or fail to keep up your books of account, fail to follow corporate formalities (such as having regular meetings of the Board of Directors), or fail to file the required annual reports with the State, then you might find yourself personally responsible for debts — even if it was formed as a corporation. The answer is not to let that happen. Always keep up the formalities, and keep your personal financial activities separate from business activities, and if you want to come in for a “corporate check up” just give us a call.
John L. Maier, Jr.