Ways to Lose Personal Liability Protection in Your Business

There are many forms of liability protection available to businesses, but there are numerous actions and activity that may lead to a loss of this safety. It is important to ensure that liability does not affect the company adversely when litigation may and does occur.

While preventing the possibility of someone suing the organization is essential, there are certain behaviors that management or owners may avoid in order to avert the disaster that costly and time wasting suits cause. This means that both research and hiring a business lawyer are imperative to the business. These are a means of protection and keeping liability from becoming a drain on revenue and profits.

To keep liability protection safe, it is important to avoid business practices that are considered sloppy or illegal. This means that books, records, financial documents and contracts should all be up to date, filled completely with clear and concise statements, clear terms and information relevant to the situation. To keep these files as such, an experienced business lawyer and accountant may be needed to ensure the papers are all legitimate. Another professional that has knowledge of finances may be required to protect the money deposited in banks or running through other sources. If anyone feels he or she is permitted to dip into these funds, this behavior should have swift and severe consequences.

Protecting Personal Liability Protection

It is important to follow regulations, guidelines and formalities in business. These rules in the states may differ, but filing documents, annual meetings of shareholders or directors and various other activities occur at the correct time and place as specified by state laws and the bylaws of the company. Minutes must be recorded as specified along with contracts and agreements completed by the deadlines or when the company is formed. It is vital that the person that owns the business separates the entity from himself or herself by following all required steps. If the company is a limited liability company, this may for most transactions ensure a complete separation of liability from the business and the owner.

Separate bank accounts should be opened for the individual and the business along with credit cards having only the person’s name for personal ones and the company name on commercial cards. Money should not be transferred between the organization and the owner unless there is a legitimate reason that is recorded. This could be for a loan or similar circumstances that are approved by the corporation and authorized by the board. Sufficient funds should be provided to the business from the beginning to ensure that the entity is not perceived to only be a shell for fraudulent activity or criminal intent.

Other Necessary Steps

Taxes and payroll must be handled properly. Otherwise, these matters may lead to a failure to comply with required regulations. Withholding taxes or other fees such as Social Security could cause an audit. It is permitted for the business management or owner to hold these funds and then deposit them into government accounts with documents recording these transactions to ensure they have been completed. However, the owner or partners may be held personally liable if these actions are not accomplished appropriately. The entire amounts that were held or kept may be penalties issued by the corresponding agencies. This ensures the responsible party is held accountable for any nefarious actions with taxes and other funds.

Borrowing Funds

When a personal loan is needed to fund a business venture, this usually means that the owner or partners are personally responsible for the loan payments. If for any reason the revenue from the company is not enough to pay the loan costs, the creditor may seek it from the personal assets of the owner. This is especially important if the company fails to pick up and there is no more revenue accruing to pay the bank or agency. The personal income and assets are used to satisfy the costs of the debt. In most circumstances, anyone with at least a twenty percent ownership or interest of the company may be utilized as a funding source for the loans provided they gave personal guarantees the funds would be repaid.

Legal Resource

A top manner in losing personal liability protection is the lack of hiring an experienced business lawyer. It is vital that companies have legal representation for a number of reasons, but to protect the liability and responsibility of repaying debts should be examined by these legal professionals before the next steps are completed.