Businesses often choose to structure as a corporation, because it offers owners the strongest protection from personal liability by treating it as a separate legal entity. But if you’re not operating your business like a corporation, you risk losing the liability security that you count on.
Getting back to the basics
No matter how long you’ve been in business, there are some elemental rules of thumb that corporations should follow to maintain their status:
- Include the corporation’s name on all company letterhead, checks and invoices
- Make checks out in the corporation’s name, not yours or another individual’s
- Avoid mixing personal affairs with corporate business
- Maintain separate bank accounts and credit cards, and keep careful records of corporate transactions
- File tax returns and pay any corporate taxes on time
In addition, shareholder and director meetings should be held on a regular schedule, with official minutes on the proceedings. Corporate minutes should provide documentation of key financial and legal decisions, such as:
- Authorization for a substantial loan to or from the corporation
- Adoption of a retirement plan or approval to make a contribution to an existing plan (for example, a profit-sharing contribution)
- Issuance of stock
- Purchase of property or approval of a long-term lease
By observing these formalities, you’ll have solid records on hand if the IRS, a creditor or a company insider challenges critical decisions.
Contact Magone & Company today at (973) 301-2300 to learn how we can help you keep your corporate operations on the right track.