3300 South Decatur Blvd, Suite 10; Las Vegas, Nevada, 89102-8153

Corporation Basics: Limited Personal Liability

You and Identity Theft
What can you do to protect yourself?

Forming a corporation can provide you with Personal liability for the business debts, but running a corporation can be complicated. And if not run correctly, your liability protections could be reduced or even eliminated.

Many people have heard that forming a corporation provides "limited liability" or "personal liability" which protects personal assets from the business's debts. What you may not realize is that there is more to successfully creating and running a corporation then filing a few papers. You'll need to keep excellent records for the complex federal (and if applicable - state) taxes. And in order to maintain your personal liability protection, you follow very strict formalities for decision making and records keeping. You must be very organized and very disciplined about maintaining that organization. Done right it can be a very detailed process - but also very, very worth it.

What is Limited Personal Liability?

One of the key reasons for setting up a Corporation is that the personal assets of the owners (stockholders) can not be used to pay creditors of the corporation. Thus if a court orders that a corporation must pay a creditor $250,000, then normally the owners assets (house, bank accounts, etc) can not be sold or seized to pay the debts. The basis of this is rooted in the concept that the corporation is a separator entity capable of conducting it's own business and affairs and thus is responsible for it's own obligations.

Exceptions to Limited Personal Liability

There are exceptions to the protections of Limited Liability of an owner's personal assets (even for Nevada Corporations). An owner of a corporation can be held personal liable if he/she does the following:

Personally and directly injuries someone (physically or financially).
Personally guarantees a bank loan or a business debt on which the corporation defaults.
Fails to deposit taxes withheld from employees wages.
Does something intentionally fraudulent or illegal that causes harm to the company or to someone else, including another company.
Treats the Corporation as an Alter-Ego or Extension of their personal affairs, rather then a separate legal entity (i.e. Commingling personal and business assets or using business assets as personal property.)

This list is not inclusive, but contains the most common mistakes individuals make when running their personal corporation.

The last exception listed above is the most common and most important and most dangerous one. The courts have ruled in several cases that the corporation was used only as a front for the owners and that the corporation's activities were more consistent with a sole proprietorship or partnership and that the owners/managers can be responsible for the debts incurred by the business. This could happen if you fail to follow routine corporation management rules and formalities including but not limited to: failing to adequately investing in the corporation; not properly issuing stock to investors; failing to hold required annual and monthly meetings and maintaining records of those meetings; and failing to keep separate the transactions of the corporation and the owners/managers.

Runing a corporation to maintain a Limited Personal Liability is not impossible, but it needs to be done properly. It is strongly recommended that you employee the services of a good corporate lawyer or CPA to assist and guide you. If - and as - your business grows, you would be well served to take college business classes specifically on business law and business records management.

Remember it is not impossible to properly run your company, and it certainly is well worth it, for many reasons.

Telephone (702) 368-4694 or Fax (702) 555-1212
3300 South Decatur Blvd, #10, Las Vegas, Nevada, 89102-8153
Located in the Decatur Inn Plaza on the Southeast corner of Decatur & Desert Inn.

Also in our shopping center is The Pizza Boy - Pizza and Sandwiches; Beacon Pointe Insurance - An Independent Insurance Agent; VIP Floral Designs; Dr. Wong's Desert Back Chiropractic; SK Smoke Shop; Asian Touch Massage and George Blackwell's State Farm Insurance

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