Two other posts (here and here) address techniques useful in protecting personal assets from the creditors of a corporate entity (I.e., limited liability company or corporation).  This post addresses specifically how to sign documents to aid in that effort to avoid “piercing the corporate veil.”

The key is to sign documents not in your personal name, but in the name of the corporation, to avoid essentially personally signing for or guaranteeing corporate debt.  In other words, Courts are going to ask “who is a party to this contract?” and how you sign will be indicative of your intention of who is standing behind the contractual obligation.

Thus, the proper way to sign all documents for the corporation is with a corporate (not individual) signature as follows:

XYZ, LLC,

an  Ohio limited liability company

By:____/signature/___________________

Its: ____/title or signer/_______________

 

Read below two related topics:

When clients approach us for business formation, one of their concerns is protecting their personal assets from a business misfortune, either simple financial failure or a catastrophic situation creating an unexpected liability.

We tell clients, first, that no undertaking is made without some degree of risk.  In shorthand, we say “if you want to avoid all potential liability, don’t get out of bed in the morning.”

But with that as background, it is possible to carefully limit  the exposure one is undertaking with full consideration given to three essential layers of protection:

  1. Engage in good practices.  Despite popular lore, most legal liability arises from either from contractual undertakings — i.e., voluntarily entering into an oral or written agreement — or negligence, i.e, failing to follow the expected standard of care in some function, whether driving a car or manufacturing a product.  As to contracts, be careful what you agree to.  As to negligence claims, if your touchstone is proper hiring, proper training, proper operation and proper supervision, and that you maintain your equipment and real estate in good condition and repair, your risks should be minimal.
  2. Buy appropriate insurance.  Then, consult with your insurance agent and purchase insurance appropriate to insure the risks that you undertake and that are inherent in your operations.
  3. Properly operate under a corporate entity.  Finally, a corporate form, properly created and respected, shields your personal assets from contractual and tort claims.  Read more here about respecting the corporate entity.

Read below two related topics:


Please contact us to learn more about how to protect your assets when forming and operating a business.

Our clients form and do business in the name of corporations and limited liability companies for a variety of reasons, but one primary motivation is to achieve the benefits of limited liability protection that the entity offers.

Optimally, limited liability protection means that the exposure of the investor/owner in a corporate entity is limited to his capital contributions and personal loans to the company, and that his personal assets beyond those are not exposed to voluntary and involuntary liabilities, which are addressed immediately below.

  • Voluntary liabilities are just like they sound — those undertaken willingly: e.g., a real estate lease, a contract to buy equipment, a bank line of credit, and a professional services contracts. Primarily they arise from contractual relationships.
  • Involuntary liabilities are not typically contractual, but are tort and statutory liability such as industrial accidents, employment discrimination claims, and regulatory enforcement actions.

For both types of liabilities, a member of a limited liability company or shareholder of a corporation can cause (intentionally or unintentionally), the “corporate veil” to be pierced.

This entry explores ways to protect that “corporate veil” of limited liability protection, but before we get there, one more introductory comment is appropriate.  Frequently clients tell me something to the effect of: “Oh, why bother with a corporation, the Courts will bypass that anyway and come after my personal assets.”

As a broad principle, this simply is not true.  Ohio Courts and courts throughout the nation have been pretty vigilant in protecting the corporate veil of owners of corporations and limited liability companies.  The protection is powerful, and very difficult to penetrate.

So, forming and properly respecting a corporate form is an important “Pillar of Strength” of your investment strategy for your business.  Here are a few tips to assure that the “corporate veil” is protected of your business entity:

  1. Read here the proper way to sign every contract your company signs to assure respect of the corporate entity.
  2. Carefully consider any request to sign a personal guarantee, as this will indeed give rise to full personal liability.
  3. Every contract your company signs should clearly be in the name of the company (not your name personally) and use the corporate form of signature (see #1, above).
  4. On your printed materials (letterhead, business cards, brochures) note your company name as “XYZ, Inc., an Ohio corporation.” This is to assure for both voluntary and involuntary liabilities you have properly identified to everyone with whom they are dealing.
  5. Do not use the corporate checking account as a piggy bank for your personal finances.  Take money out only as regular pay checks or corporate distributions.  So, don’t pay personal expenses from the account (such as a dry cleaning bill), or put non-corporate income into the account.  This “no-no” is a key element of the “alter ego” analysis in which Courts will engage when a Plaintiff undertakes the difficult task of piercing a corporate veil.
  6. For corporations, have annual meetings and other meetings required by the corporate documents, an d maintain corporate minutes of those meetings and approvals of significant corporate contracts and occurrences.  The Ohio limited liability company statute dispenses with this requirement for LLCs.

Read below two related topics:


Please contact us to learn more about how to protect your assets when forming and operating a business.

 

Like your business, the Finney law Firm has a business plan — to grow our services to meet your needs both in volume of service delivery as well as breadth of practice areas.

In March, Chris Ragonisi — an experienced labor and employment attorney — agreed to become “of counsel” to our firm to serve this area of need for our clients.

In April, Brad Gibson, a gifted commercial and public interest litigator signed on as a litigation associate.

Finally, to accommodExpansionate this growth, we had to add two new offices and a wing for more paralegals.  The build-out has begun!

We are excited to bring these professionals along to meet our clients’ needs.

And, we have more announcements coming soon!