What You Should Know about the Corporate Veil
If you are thinking of forming a business whether sole proprietorship or partnership, you should consider options like limited liability company. One of the major reasons why very many people form LLC is because of limited capital which is also why many start at home. There are reasons why forming an LLC is recommended. Majorly, many people go for this option because it offers protection against creditors and any other liability, which is also known as corporative veil. One of the things you learn is that it is very legal and no creditor can be able to touch your personal assets or retirement savings.
It is critical to also learn that registering your business as LLC is not always a guarantee that you will get full liability protection. This is to mean that the creditors can actually sue you and seize your personal assets. This process is normal record as piercing the corporate veil because it can give them the ability to pierce the corporate veil. Discovering more about different situations that can give the creditors the right to pierce the corporate veil is very important to avoiding them. Sacrificing public good for corporate gain can be one of the circumstances where the creditor can legally pierce the corporate veil. You will not have this kind of protection also, if you are using business credit cards for personal bills. If you failed to keep proper corporate records or failed to comply with different obligations you will find yourself here.
There are strategies you can employ to ensure that you are fully protected. One of the things you definitely have to do is ensure that business registration compliance is kept. You can ensure that you get federal tax ID, adopt LLC operating agreement and also secure business licenses and permits. The ongoing compliance requirements such as submitting annual report, remitting taxes and reviewing licenses and permits are also important.
The other issue, you have to deal with is ensuring that business has a company bank account. As stated above, if you use credit cards to finance personal items, you will give the creditor an opportunity to pierce the corporate veil and therefore, you want to ensure you are separating personal expenses from business expenses. The creditor can pierce the corporate veil if you are business loan guarantor. Avoid any legal trouble because it can open a door for them to do so. Illegal activities can be one of the reasons why any creditor can pierce the corporate veil. Get the help you need to safeguard your corporate veil.