Business owners and entrepreneurs take risks every single day. They have to if they want to succeed. But, one huge risk they don't want to take is the possibility of losing it all through stupidity and dumb mistakes. The five keys discussed in this article could save you from making simple, but dumb mistakes that could be disastrous.
Business owners have a lot to worry about. They've got employees, taxes, products or services, advertising, marketing, finances, and a host of other issue to deal with. Because of all this they'll almost never realize the huge risk they place themselves in by not following all the rules and regulations.
When a business fails to follow all the laws, keep all the rules, or maintain all the regulations, a court may decide to set aside the liability protection otherwise afforded their business entity. This is called, "piercing the corporate veil" and has become one of the most litigated issues in business law today.
Here is a short list of five keys every business owner must recognize and follow if they hope to keep their corporate veil intact. Recognize, of course, this is not an exhaustive list. It is, however, a great place to start.
The First Key: Registering with the State, Getting a Tax ID Number and Thinking You're DoneMany business owners don't understand that ongoing corporate governance is the price for the liability protection of a corporate veil. Statistically, veil piercing cases succeed between 67-96% of the time, primarily because owners ignore governance requirements. Veil piercing is the classic "stealth" business problem - it's often invisible until it's too late.
The Second Key: Sole Shareholders Neglecting Formal MeetingsMany businesses consist of sole shareholders who also serve as President, Secretary, and Treasurer of their business entity. The idea of holding formal corporate meetings with oneself sounds silly, and many owners fail to do so. However, single shareholder corporations run the greatest risk of veil piercing, precisely because no other owners are helping to drive formal corporate behavior. This is where Bulletproof Veil shines, since we walk you through all the required protocols and formalities.
The Third Key: Wrongly Assuming Your Attorney/CPA is Taking Care of GovernanceVery few CPAs and attorneys handle corporate governance for their clients. Nothing in a typical CPA's training prepares them to offer corporate governance. Few attorneys provide ongoing compliance management because most don't have the specific expertise and can't afford to do so when operating on a "billable hours" model. Corporate governance involves a lot of monitoring and detailed task work, which is precisely why many business owners neglect it.
The Fourth Key: Failing to Keep a Proper Paper TrailFew business owners bother to maintain proper corporate behaviors, let alone document them. In an audit or litigation, usually the first thing requested is your corporate record. One business owner had suffered through a lengthy, expensive IRS audit simply because he couldn't produce Articles of Organization for his LLC when the IRS demanded it.
The Fifth Key: Believing LLCs are Safe and Won't be PiercedNo doubt, state laws on LLC liability are still evolving. Nevertheless, all the available evidence makes it clear that LLCs can be pierced, have been pierced, and will be subject to the same governance standards as corporations. Many business owners will say, "My advisor says an LLC is great because I don't have to maintain it and it can't be pierced". This is bad, inaccurate advice. Don't allow yourself to become exposed by failing to maintain any and all of your business entities properly.
While these five keys are a nothing more than a quick look at a much bigger issue, there is an excellent article, The Myth of Corporate Veil Protection, that you can get without paying a dime. Simply click here and pick up your copy today to better understand the risks you might be taking without even realizing it.
