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Corporation Limited Liability

The following is for informational purposes only, always consult with your legal or tax professional 

Protecting Limited Liability

The corporation is characterized as a separate entity and can offer liability protection to the owners, if the owners adhere to the following corporate formalities:

• The corporation maintains business records and transactions separate from the owners.
• The owners manage the corporation fairly and legally, and are not concealing any material information from investors, creditors, or vendors.
• The owners make an adequate investment in the company; the owners cannot simply lend the company money.
• The corporation holds regular meetings between directors and shareholders.
• The corporation formally issues stock to initial shareholders.

Restrictions to Limited Liability

The benefit of limited liability will be challenged if:

• The owner personally guarantees a bank loan on which the corporation defaults.
• The business owner directly injures someone.
• The corporation performs any illegal activities.
• The corporation does not separate itself as an independent entity from the owner, that is, the owner does not separate business from personal matters. You will have to treat the corporation as if it is a separate entity. You should document everything.
• The corporation fails to deposit taxes withheld from employee wages.
• The corporation assets and liabilities are manipulated by the shareholder

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