Whether you are a 1-person limited liability company (LLC) or corporation or one of many owners in an LLC or corporation, proper record-keeping is important for many reasons. It is more obvious from a tax-standpoint that keeping detailed records is critical to maximizing expenses and deductions, but there are legal reasons as well.
One important benefit of a limited liability company, a corporation, a limited liability partnership, or other similar entity, is the liability protection afforded to the individual owners. If your LLC were to be sued, in theory your personal liability should be limited to your investment in the LLC and the remainder of your personal assets should be protected from judgment. To keep this liability protection intact, you need to treat your business entity (LLC, corporation, LLP, etc.) as separate and distinct from yourself. If you do not treat the business entity as separate, then you may open yourself up to personal liability for business-related debts, judgments, etc. through a concept known as “piercing the corporate veil.” In other words, if you want to be treated like a corporation (LLC, LLP, etc.), you must act like a corporation (LLC, LLP, etc.).
Fortunately, there are some good business practices involving record-keeping that can strengthen the liability shield afforded by your business entity. These practices include, but are not limited to:
This list is not exhaustive and these are just some of many factors that will be considered when determining if the corporate veil will be ‘pierced.’ How can Fremstad law help? To name a few services we offer- we are here to review your current company documentation practices, assist with proper documentation of company actions, assist with annual filings, review and/or prepare contracts, among any other assistance your business might need.
Please call us to discuss your business needs. We are here to help. 701-478-7620
© 2021 Fremstad Law