As the President, CEO, Sole Member of an LLC, or the face behind your company, the line between what property or income belongs to the company and what belongs to the “head honcho” may become blurred. However, it is critical to treat your business, whether it is a corporation, limited liability company, or nonprofit as a distinctly different entity than the individual running it. Failure to keep business and personal property and finances separate can result in personal liability to the owners/principals of a company.
A corporation and limited liability company is its own juridical person, meaning this entity has a life of its own. It can buy property and have a bank account in its own name. To maintain this corporate status, certain formalities must be followed.
The company must be registered and active with the Louisiana Secretary of State. Annual reports must be filed with the Secretary of State. You must have a designated registered agent to receive important documents on behalf of the company, and if this person changes, you must notify the Secretary of State. All of this can be conveniently accomplished electronically through the LA Secretary of State's GeauxBiz online application.
Not only do you have to maintain the proper filings with the Secretary of State, but to avoid personal liability for your company, you must maintain distinct corporate formalities. This means certain procedures must be followed to keep a paper trail for the company. You must hold meetings regularly to vote on matters which require a majority vote, and you must keep a written record of these meetings. If there is a sole shareholder or member of the company, you must pass resolutions authorizing any action to be taken on behalf of the company. These resolutions should be kept with the company's books and records. We often advise having a binder filled with these records. At a minimum, one meeting should be documented in writing per year. It is also important to keep bank accounts separate and to keep methodical books and records of the company noting accounts receivable and accounts payable. It is critical to avoid treating the company's bank account as your own personal piggy bank. This type of treatment is the single biggest factor in determining whether your company's limited liability status will be disregarded by a court.
The two most valuable people to have in your business's corner are a certified public accountant to maintain the books and a general counsel to provide competent day to day business advice to ensure you are keeping your business and personal matters separate.
If an individual fails to keep his or her business life separate from personal matters, such as paying personal debts from a business account, failing to maintain a separate record for all transactions, and putting company property in an individual's name, this can result in personal liability for company debts and company negligence. This concept is called piercing the corporate veil and means a court of law will ignore the company status and look to the shareholder or member of the company to pay a debt or judgment. A general counsel and certified public accountant can help your business stay on the straight and narrow to maintain its corporate status and avoid piercing of the corporate veil.