Business Attorney In Menlo Park Urges You to Keep Your Personal and Corporate Matters Separate

As a business attorney in Menlo Park, I know that everyone is concerned with potential exposure to liability, and this is especially true when you own and operate a business. There are many ways to shelter your personal assets from business-related liabilities, one of which is to incorporate your business. This means forming a corporation by filing some documents with the Secretary of State’s office and transferring your business to that corporation. Your business consists of the contracts for work, the receivables, equipment, the business name, client list, and so on.

While it is quite easy to form a corporation with the help of your Bay Area business attorney, it is not so easy to operate a corporation, especially if you have been in business as a sole proprietor for many years. When you are a sole proprietor, the money your business makes is your personal money and the debts your business incurs are your personal debts. There is really no distinction. When you form a corporation, that changes. The corporation makes the money and incurs the liabilities. Therefore, if your corporation performs services for a customer and the customer is dissatisfied with the work, the customer must sue the corporation to get satisfaction, not you, the owner. If the customer gets a large judgment and there are insufficient assets in the corporation to satisfy it, the customer cannot come after you for the balance. Thus, your personal assets are safe . . . or are they?

If you don’t operate the corporation as a separate entity, i.e., you keep doing business the same old way, you will have a problem. If you treat the corporation as simply an extension of yourself, then the court can declare the corporation a sham and “pierce the corporate veil,” allowing the customer to reach your personal assets to satisfy their judgment. Here are some simple rules to follow to make sure that does not happen:

1. Complete all your initial corporate documents, including bylaws, organizational meeting minutes and filings with the state. Your attorney can make sure these are done correctly — avoid the “Do-It-Yourself” kits.
2. Have stock certificates issued to you as the owner of the company.
3. Hold regular corporate meetings (at least annually) and keep minutes (notes) from the meetings in a corporate binder.
4. Change your business documents to indicate that you are now a corporation. This usually means adding “Inc.” to the end of your business name. This is an expensive step because it means getting new business cards, signs, stationary, contracts, and more.
5. Open a separate bank account in the corporate name. And don’t pay your grocery bill out of the corporate bank account!
6. Become an employee of the corporation and issue yourself a regular paycheck.
7. Get a corporate tax identification number from the IRS.
8. Get a separate license issued in the name of the corporation if required to do so by your licensing board.
9. Prepare and timely file any annual forms required by your state.
10. Change your vendor accounts to your corporate name so future invoices come to the corporation and not to you personally.
11. Make sure all customer checks are written to the corporation and not to you personally.

If you need assistance reviewing your corporate affairs, please call for an appointment — 650-422-3313.