Maintaining Your Business

Once all of the documents have been filed and the business is properly registered, it is important to set up the internal corporate structure that will keep the business separate from your personal assets, activities, and interests. If the business entity is determined to be an “alter ego” of the individual business owner, meaning that there is no distinction between the business owner (operating individually) and the business, the business owner might lose the liability protection of the business (this concept is called “piercing the corporate veil” of the business to hold the business owner individually liable for a legal claim). There are a number of ways in which a claimant can try to pierce the corporate veil of the legal entity. One key argument is that the business owner failed to maintain separate identities for the company and its owners. Many courts look at whether the company has a separate bank account, whether the assets of the company are treated separately from the assets of the business owners, and whether the business owners observe all corporate formalities (i.e., that they file the business taxes and required registration documents, record financials and activities in separate records, etc.). If these characteristics are present, it is more likely that the business owners would be shielded from personal liability (assuming that there is no other reason to pierce the corporate veil and disregard the business entity).