Your Business’s Legal Documents: Good Enough Isn’t Good Enough

U.S. Small Business Administration’s Small Business Week is April 28-May 2 this year.

Too many people think that just registering your business with the Secretary of State and creating an LLC is all you need to do to protect your personal assets from liability if your business gets sued.

Wrong. So very wrong. There are multiple steps to creating a business organization. There are multiple things that need to be continually done to your business organization’s records and operations to ensure that your personal assets are fully protected.

There’s a legal concept called “piercing the corporate veil” that courts will sometimes use. Essentially, even if you claim you have a business that’s separate from your personal assets, a court can look at the totality of the evidence and decide that it’s not really separate. If your personal and business assets are deemed to be one-in-the-same by the court, a successful judgment in a lawsuit against your business can drain both your business and personal assets. For example, if all you did was register your food truck business with the state, but your business bank account is in your name, that’s not a clear enough distinction. If you get sued because someone gets sick from your food, they could take all the money in all of your bank accounts. Another example is if your farm business is supposedly in an LLC, but someone gets hurt by your farm truck that’s in your personal name, they can put a judgement lien on your house.

We all know that we’re supposed to get a checkup from a doctor regularly, even if there’s nothing “wrong” with us, right? It’s the same thing for your business’s documents: they need a checkup sometimes. There’s no “one size fits all” checklist for all businesses to make sure that they’re in compliance. The best advice is to seek professional help from a lawyer and/or accountant.