Corporate Formalities Checklist-Shareholder Asset Protection

Posted almost 6 years ago. 2 helpful votes

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1

Use the Corporate Name

Make sure that third parties who deal with the corporation are aware that it is a corporation and are dealing with the corporate name or a properly registered fictitious name. Make sure that fictitious names (corporation doing business as) are duly registered both with the Secretary of State and locally in the county where the primary office is located.

2

Don't Give Personal Guarantees

Do not give personal guarantees or have personal involvement in situations that would result in personal liability. Any document signed on behalf of the company should clearly indicate that the person signing is doing so in his capacity as an officer, without a personal guaranty. Read the agreement carefully to be sure that there is no "small print" that would make the signing officer liable.

3

Use a Corporate Checkbook

Treating the corporation as a separate financial entity is important. The corporate checkbook should not be your individual checkbook. Payments to and from the corporation need to be properly documented as loans, capital contributions, compensation or dividend distributions. These items should be specified in the annual corporate minutes.

4

The Corporate Name on Invoices

Invoices for items purchased by the corporation should have the invoice show the corporation as the purchaser to avoid potential personal product liability claims.

5

Limit Driving by Employees

Think twice before permitting employees to drive personally-owned vehicles. If an corporate shareholder's name is on the title of a car, he has potential liability for accidents while someone else drives it. Also make sure that your commercial insurance package includes "non-owned automobile" coverage for potential liability from accidents while an employee or contractor is running errands in his or her own automobile.

6

Document Loans to Shareholders

If the company owes money to a shareholder or related parties, document this with a promissory note, file a security interest lien or mortgage on corporate assets so that the individual will be paid before any third-party creditors.

7

Update Pension Plans

Corporate pension plans require periodic updates and IRS filings to maintain creditor-proof status and income tax advantages.

8

Update Minute Books

On an annual basis, the corporation's CPA should advise its attorneys what needs to be documented in the corporate minute book for tax purposes. This includes salary payments made to shareholders, shareholder loans, capital contributions and any significant capital transactions. The IRS and creditors may ask to inspect the corporate minute book when tax or liability issues arise.

9

Avoid confusion among multiple corporations

Owners of more than one corporation should be sure that applicable formalities and documentation do not inadvertently make these corporations "parents" that would be jointly and severally liable. Inter-company transfers or financial arrangements may cause tax problems.

10

Landlord's Lien

The assets of a corporation can be protected by giving the related landlord a lien to enforce future rent on a long-term lease. Rental payments must comply with the terms of the lease to be deductible.

Additional Resources

Buffalo, NY Corporate Attorneys

"The Upstart Small Business Legal Guide"

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