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LOSS
OF CORPORATE PROTECTION
In today’s litigious
society, many people seek to “pierce the corporate veil” to
establish personal liability on its owners, notwithstanding the legal
entity formed to provide this protection.
Below is a laundry list of what types of problems allow a
potential creditor to hold owners personally responsible.
As a business owner this list should be reviewed regularly to
ensure you are not leaving a door open to an unwanted creditor.
1). Failure to observe
corporate formalities, such as:
a)
Failure to hold meetings;
b)
Failure to keep the property in the name of the corporation;
c)
Failure to sign as the correct officer of the corporation;
d)
Failure to have corporate authorizations, ratifications, and
resolutions for transactions;
e)
Failure to have regular Board of Directors meetings;
f)
Failure to have regular shareholders meetings;
g)
Failure to have annual shareholders meetings;
h)
Failure to issue the corporate stock, or maintain the
stockholder's ledger;
I)
Failure to maintain up-to-date corporate records, resolutions and
ratifications;
j)
Failure to have the required initial organizational meeting;
k)
Failure to adopt corporate by-laws;
l)
Failure to maintain proper accounting records;
m)
Failure to advertise and serve notice that the business is
operating as a corporation and is no longer a sole proprietorship,
partnership or other entity;
n)
Failure to transfer assets into the corporation and capitalize it
properly;
o)
Failure to get proper state and local business licenses in the
name of the corporation;
p)
Failure to transfer assets, property, records, etc. into the name
of the corporation; and/or
q)
Failure to file state and federal report forms;
2). Non-payment of
dividends;
3). Insolvency of a
debtor-corporation at the time of transfer;
4). Siphoning
corporate funds by a dominant stockholder;
5). Non-functioning of
the other officers or directors;
6). Absence of
corporate records;
7). The use of the
same business or office location by the corporation and it's individual
stockholders;
8). The fact that the
corporate is merely a facade for the operations of the dominant
stockholder;
9). Giving improper
guarantees for, or on behalf of, the corporation;
10). Sale of a
controlling interest for less than fair market value;
11). Profiting from
inside the corporation;
12). Short swing
profits;
13). Failure to
disclose material facts, transactions for the companies in which the
officers or directors have conflicts of interest and benefit from;
14). Violating the
articles or by-laws of the corporation;
15). Failure to file
or report corporate taxes;
16). Failure to
register the corporation in other states;
17). Loans to officers
or directors or stockholders that benefit the individual to the
detriment of the corporation, causing the corporation to incur
unnecessary expenses, liabilities, or tax liabilities;
18). Excessive
compensation or dividend payments.
Though in many areas
the topics in this list are broad, we hope the above summary will assist
you with a starting place to evaluate your company.
Of course, how to meet the state requirements to ensure you
receive the full advantage of operating and tax benefits and limiting
personal liability, can be very complicated.
Should you have any questions, please feel free to consult
further with us to determine how best to remain in compliance.
We look forward to answering your questions.
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