structure is not likely to hold up in court. If you think this is another easy one…then WATCH OUT, because there are other more complex issues relating to the use of company and personal assets in the business. 3) Not Enough Capital in the Business. In other words a lack of savings and/or insurance coverage – Your business must have enough insurance and/or savings to cover expenses, liabilities, and obligations. The amount of capitalization refers to the total value of assets (equipment, cash, stock, etc.) in the company and insurance coverage that is available. This is another COMPLEX area which needs more discussion…because you may need more or less ‘capitalization’ based on your business type. The more you deal with the public, the greater your level of recommended capital. If your business does not have enough capital and/or insurance to cover operating expenses and potential liabilities, then a state court could rule to go through the business entity to reach the owner’s pockets! Why would a court do such a thing? The reason is to ‘find the money’. This is one of the important reasons I educate my customers on insurance! 4) Forgetting to File State reports – Your state will require you to keep up with reports and state taxes (sometimes called franchise taxes and/or business privilege taxes). If you don’t keep up with these reports and/or taxes owed (even if nominal or zero) your business privileges will likely be revoked. Guess what privilege goes first? It will be you corporate or LLC charter. As a result, your liability protection is lost! 5) Other formalities – These include meetings, paperwork, required records, proper roles and obligations among the parties, and transfers of ownership interests, and more. It is very rare that we see full detail on how to create ‘iron-clad’ records in these areas. Instruction on these specifics have become a ‘lost art’ so to speak, among attorneys and accounting professionals. Its one of the reasons that I spent so much time teaching these fundamental rules.
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IMPORTANT NOTE: The list does not stop here because there are 25 to 28 often neglected practices that must be performed to ‘iron clad’ your business. While we have covered 5, many of the others are very easy to miss and they are routinely used by creditor attorneys to ‘crack’ open a company. Please make sure you get proper instruction on how to run your business entity after it is created! Nearly anyone can file the entity for you…the ‘lost art’ is how to maintain the protection of your LLC or corporation.
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Attorney Darius M. Barazandeh 14