You have worked hard and decided to make a huge investment regarding your time, finances, and energy, to start a company. The very last thing you want is to expose yourself and/or your personal assets to unwanted and unnecessary liability. Therefore, you need to protect yourself from liability by following certain "corporate formalities," whether you have formed an LLC or a corporation.
In Georgia, by law, a corporation is considered a person. When you formed your company, you created a "corporate veil," a person that stands between your personal assets and your business. It's important to maintain this veil (person) as a shield against personal liability for actions taken by the company (the person you created). Maintaining the veil however is more than just forming the business entity and registering with the state.
If you act appropriately, the corporation (person) you created should be solely responsible for corporate debts incurred, not you. You MUST, however, adhere to certain conduct.
The first thing you will need to do is to be very careful about separating your personal assets from the company's assets. Set up different bank accounts and credit cards. Failing to separate assets is the most common mistake small business owners make. Do not pay personal bills from the company's accounts, and vice versa. This is especially important where the company has only one member or shareholder.
Georgia courts have found that an owner who commingles resources is using the company as an alter-ego, and held the owner personally liable for actions taken by the company.
There are several other formalities that must be observed to preserve the shield against personal liability:
1. Hold annual shareholder or member, and board of director meetings;
2. Keep accurate corporate records (meeting minutes and accounting records);
3. Keep a close eye on the payment of dividends - do not pay out excessive dividends which leave the company undercapitalized.
It is fairly easy to make sure your business is separate from your personal life. The most important things to remember are: (1) follow all requirements set out by the state's corporations code (file annually as required; have regular meetings for important transactions and annual meetings are required by the state; keep detailed meeting notes; and keep accurate accounting records); and (2) do not use the company as a facade for your individual dealings. The company's business should be completely separate from your own; do not mix your assets and dealings with those of the business.
Again, simply forming a business entity with the Secretary of State and nothing more will not protect you against liability for actions taken by the company. It is just not worth the risk to not take some simple actions to protect your personal assets. you need a experienced, good attorney to help you set up your corporation properly. You have come this far, so not short yourself because you could be hurting your overall dream.
Contact Williams Oinonen LLC for more information about how you can protect your assets.