By Administrator User posted on Monday, June 13, 2011 @ 1:39 PM - (Business Formation)
So you have taken your lawyer's advice and formed an LLC, and LTP, or a Corporation? Now what?
Forming a business entity is a great idea to protect your personal assets. Generally speaking, your personal assets such as your car or home are protected from your business creditors once you do form an entity. That protection, however, is not automatic. Even if you have formed an entity, you still need to manage your business in a way that provided ongoing protection to your personal assets. Your entity's liability shield will do you no good if you do not follow several important steps while operating your business. An example includes proper capitalization. If you get sued, and you lose, the person suing your company may still be able to go after your personal assets by "piercing the corporate veil."
In plain English, this means that the person who sued you may go after your personal assets, such as garnishing your wages, if your business was not properly capitalized. An example would be if you own an online merchandise company. If you routinely sell $1,000 worth of t-shirts, but you only carry a balance of $5 in your business checking account (and thus could not satisfy a judgment levied against your business), the plaintiff may be able to argue that the Court should allow him to go after your personal wages to satisfy the judgment. This can absolutely be avoided if you follow these excellent tips from National Litigation's Consultant Review. This is a must read for any business owner.