The majority of all lawsuits in business law come back to finances in one form or another. Corporations and LLCs can easily lose their status as corporate entities for failure to take sufficient financial precautions or because they did not handle their money appropriately in the eyes of the law. To make sure that you do not run into this kind of problem, make sure that you take the time to follow all of the requirements in your state. Here are some of the most common ones.
Keep Business Finances Separate from Personal Finances
According to the American Bar Association, one of the most common reasons that businesses lose the protection provided by corporate status comes from the comingling of personal and occupation funds. All of your business funds should be kept separate from your personal finances. Not only should you keep them separate, but you must make sure that you do not use business finances to pay for your personal needs, nor should you use your personal finances to cover your occupation needs.
While it might seem redundant, the best way to protect your LLC, or corporate status, is to transfer money from your personal account into your business account to pay for added occupation needs, marking it as a occupation expense. You need to create a clear paper trail of the money, while at the same time, showing that you are following the formalities.
Regularly Balance Your Business Checkbook and Save Financial Reports
Another one of the common reasons that businesses get in trouble with the law, and lose their corporate protection comes from failure to balance their books, and demonstrate financial responsibility. While this does not tend to be as big a problem for an LLC, it can cause a corporation to lose its special creditor protection and, potentially, tax exemptions. Make sure that you save all of your financial documents, balance your checkbook, and account for the money that you spend on your occupation; and that you earn from your occupation. Whether you have an LLC or a corporation, make sure that you do this at least once a quarter, or more frequently, to offer the maximum protection.
When you incorporate your business, you receive certain protections that will help keep your assets away from creditors, and which may allow you to receive certain benefits. You can lose these benefits, though if you are not careful. Take care of your finances and make sure that you keep your business finances separated from your personal finances. Also make sure that you regularly balance your checkbook, and save all your financial reports.
The author is associated with legalzoom which is a prominent provider of legal advisory services including services such as non profit organizations, filing bankruptcy, copyright, LLC etc to corporations and business houses.
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