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ASSET PROTECTION FOR YOUR SMALL BUSINESS

It's important to identify a scam when you see one. As you know, many attorneys like to play both sides of the field at the same time. On one hand, they advocate for incorporating a corporation or LLC. They tout the benefits, such as limited liability, protecting your personal assets from the liabilities of the business and other issues. Then they attack corporations and LLC's and find ways to go after the owners, as well as the company itself. This process is called, "Attacking the corporate veil."

The Corporate Veil

Essentially, a corporation or LLC is a person like you or me in the ability to buy or sell property, sue or be sued and to engage in business in every way. That company is separate as long as it is run as a separate from your personal affairs. This means that the company bank account shouldn't be used to pay your personal expenses. The company pays you, and then you pay your personal expenses. The business pays its own expenses that are considered ordinary and necessary to do business. It's important to not commingle your personal assets with that of the business, or commingle accounts. Attorneys like to use this commingling of activity to your disadvantage. Their argument? The company is really you and you are the company. They argue that there is no real separate nature between you and the company in the first place. As a result, they advocate that you should be personally liable for the actions and the activity of the corporation or LLC.

A key point is to keep the business affairs and your personal matters separate in every way.

Attorneys also like to attack the formalities. This involves keeping resolutions and minutes of meetings. Most business people fail to keep these formalities. Opposing legal counsel then attacks the corporate veil, claiming that the formalities were not done at all, and that the company was not run as a business.

It's critical to draft, sign and keep these resolutions and minutes.
- But how is this done? This is more simple that you think.
  - Resolutions: A company resolution is a document your drafted, signed and dated that states that you resolved to do something. For example:
    - On June 1, 2009, we resolved to buy a new computer for the office, and the necessary software. Signed by __________________ on June 1, 2009.
    - On July 8, 2009, we resolved to acquire a delivery vehicle for the business. Signed by __________________ on July 8, 2009.
    - On September 10, 2009, we resolved to hire an assistant to take orders. Signed by ___________________ on September 10, 2009.
  Notice how the resolution is not in legalese. It's simple, direct and to the point. If you make these matters easy on yourself, chances are you will follow through and complete these resolutions.

Hint: Keep a spiral notebook in your file. Write these resolutions in the notebook. It's ok to make mistakes. Just make the dates sequential, sign your entries, and be specific. It doesn't need to be perfect.

Minutes of meetings are done in similar format. Just paraphrase what was discussed and what you decided. Date and sign, and place into the spiral notebook. Spiral notebooks are great because the pages cannot be rearranged without ripping out the pages. If you kept up with the resolutions and minutes, then it's proof positive that you did it correct.

If you haven't done so, then obtain a three ring binder. Then start your "company diary" of resolutions and minutes, as you may best recollect them. Keep that on file to prevent problems later. Keep it short, sweet, and to the point. It need not be perfect.

Separation of Assets From Liability

Most times, customers, vendors and employees pose the greatest liability threat to the business. Keep enough assets in the company to meet obligations. When possible park assets in a second entity, that is not exposed to as much liability.

For increased protection, separate assets according to their relative level of liability exposure. High-risk assets such as a medical practice or a restaurant are best separated from brokerage accounts and low-risk real estate investments. A risk-producing asset such as an apartment building should be contained in a separate entity from a residence. This separation takes place by placing the assets into separate entities.

Text Box: HIGH RISK
Restaurant
Medical Practice Text Box: LOW RISK
Brokerage Accounts Intellectual Property Text Box: MODERATE RISK
Apartment Building