Most small business owners understand the importance of shielding themselves against personal liability arising from their corporate activities.  At The Roth Law Group, we counsel our corporate clients to observe recognized corporate formalities to avoid "piercing of the corporate veil" which could leave business owners personally liable for the liabilities of their businesses.

For example, many new business owners are not aware that comingling of personal and business funds can have dire consequences.  In order to avoid this, we suggest that our clients establish and fund business bank accounts before they conduct their first corporate transaction.  Case law has established that business owners who use their business accounts for personal expenses might be liable for comingling.   

Next, it is important that accounting records be well maintained and kept up to date and that the company be adequately capitalized so that it is able to cover its liabilities.  For instance, if a company is ordering on credit without the means of paying its suppliers, the owners might be later found personally liable if the business later defaults.  Also, this helps avoid comingling of accounts between business and personal.   

Insurance is also important and we recommend that our clients obtain a Commercial General Liability Policy as well as Director and Officer insurance prior to beginning operations.  Again, if your business is not adequately insured, the possibility of personal liability is very real.  

Finally, good record keeping and staying up to date with the Secretary of State is an ongoing obligation.  If a business fails to file its annual report, they may lose their "good standing" status, which essentially wipes away thier corporate shield.  

These examples are not intended to provide an exhaustive list of corporate formalities and business owners are encouraged to consult with a corporate attorney to make sure they are in compliance with all formalities recognized by law.     

 

Litigation is time consuming and expensive.  Well-worded contracts and standardized terms and conditions have proven effective in limiting or even disclaiming liability in certain commercial transactions.  Small business owners can also define venue to avoid trial in a foreign jurisdiction or even limit resolution to arbitration in an effort to avoid the uncertainty of a jury trial.  

One of your first orders of business for 2009 should be to "tune-up" your contracts and implement standardized terms and conditions.  Call us today to discuss these and other important litigation avoidance strategies.   

Many business owners assume that acquiring a business through an asset purchase - as opposed to a stock purchase - automatically protects them from the pre-sale liabilities of the seller.  In reality, most states have measures in place that allow transfer of outstanding tax liability to the new owner;  regardless of whether the business was acquired through an asset or stock purchase.

In order to try to avoid inheriting the tax liability of the predecessor, business purchasers may wish to provide notice to the state department of revenue to obtain a tax clearance certification.  This is In addition to any bulk-sales notification usually required by the states to notify creditors of the sale.  

The Roth Law Group can help you navigate your business sale or acquisition.  Call us today for a free consultation.