5 Ways Business Owners Can Avoid Personally Liability for The Debts of Their Business

One of the main draws of creating a separate stand-alone entity (e.g., corporation, limited liability company) when starting a new business is to avoid being personally liable for the debts incurred in furtherance of the business. However, that protection could be lost if the business is not properly managed by owners, shareholders, officers, and/or directors of a business.

Here are five things a business owners should consider doing to reduce the chances of a court piercing the corporate veil.

1. Create Separate Bank Accounts

Co-mingling your personal funds and business funds is one of the easiest ways to be personally liable for business debts.

So, once you have an Employer Identification Number, set up bank account for your new business. Be sure to bring the documents showing your business was registered with state (articles of incorporation for a corporation, articles of organization for a limited liability company) to the bank with you.

Once the account is set up, make sure that any revenue earned by your business should be placed into the company’s bank account rather than directly into your personal account. Most important, only use that account to pay expenses of the business.

2. Talk to an Accountant / Bookkeeper

Talk to an accountant to understand what is a business expense compared to a personal expense.  Consider hiring a bookkeeper to track and classify all payments in and out of your business.

3. Set Up a Company Credit Card

Next, pay all expenses for the business with a company credit card and pay the bill for that credit card with money in the company’s operating account.

4. Set Up an Online Presence Separate from Your Own

Once you are ready to start conducting business, create the company’s online presence.

First, create a website for your company which has your company’s contact information which should be different than your own including creating a separate email address, setting up a new telephone number, and a mailing address for the business. Then create an online presence with social media and a business listing on search engines and related maps like Google MyBusiness, Bing, or Apple Maps. Invest in creating a logo for your business as you will need that not only for the website and social media accounts but also for promotional materials.

5. Keep Corporate Records

Aside from being required by most corporate bylaws, shareholder agreements (for corporations), and operating agreements (for limited liability companies), you should hold quarterly or semi-annual meetings with shareholders, keep written minutes about what transpired at those meeting, and draft corporate resolutions memorializing some of the more significant decisions the managers and owners have made for the business.

If your business pre-dates modern videoconferencing, you should also consider having a New York business lawyer or a New Jersey business lawyer reviewing and revising the documents governing your business so you have the flexibility to hold these meetings and send out related notices to shareholders and owners via electronic means.


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