What do I have to do, now that I am incorporated?
A corporation is a legal entity separate from its shareholders. The assets of the corporation belong to the corporation, not to its shareholders. The assets of the shareholders are separate form the corporation. It is said that the corporation has “limited liability”. We want to expound upon this:
“Limited liability” does not mean “limited responsibility”. The corporation has a duty to act in a legal and moral manner. A business does not incorporate to provide inferior products and services and then shield itself from responsibility via a corporation. To act in such a manner is not only immoral but is a very bad business practice.
The reason a person incorporates a business is to limit the risks of doing business.
The person wants to invest a certain amount of capital and is willing to risk that certain amount of capital, but not his or her personal assets, such as other business that he or she might own, or savings, investments, or the residence.
We must be aware that the protection provided by a corporation is not a wall, but a thin veil that may be penetrated under certain circumstances. Thence the term: “piercing the corporate veil”.
Several of the factors taken into consideration in “piercing the corporate veil” are the following:
- Failure to issue and register stock.
- Lack of corporate formalities.
- Undercapitalization.
- Treating the assets of the corporation as owned by the shareholders.
- Not separating corporate and personal assets (bank accounts).
- Poor or no corporate records.
- Use the corporation as an agent without any real business activities.
- The business affairs of the shareholders and the corporation are intertwined.
- When the corporation and other businesses have common officers and shareholders.
- Having a common name with other owned business.
There is not a single factor that is determinant. It requires a “facts and circumstances” analysis to pierce the corporate veil.
There is a plethora of cases dealing with this issue. It will not be difficult to find one.
OK, OK, all this legalese sounds very impressive to me. But now that I am incorporated, tell me,
in down-to-earth terms, what do I have to do, now that I am incorporated?
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