As a business owner, imagine you are in the LLC and Corporation club. The club of Corporations and LLC’s can give you great benefits as one of its members.
Running a business is challenging and filled with the chance for big rewards, but if you make a mistake, isn’t it nice to know that the problem stays with the business? Your club membership says that the risk or problem stays with the business and does not affect you. You are not personally liable for any problems that occur in the business.
This is called limited liability
The liability or risk is limited to the assets of the business only. What a great benefit, and you get limited liability just by starting your LLC or corporation!
Just like any club you have ever joined, there are rules the members must follow. Limited liability only applies to club members whose companies are following these rules. In fact more than 90% of all business owners are in violation!
No one gave you a rule book when you started your LLC or corporation. So how do you “act” like one? That’s the problem. Attorneys and IRS auditors know you don’t know the rules. They know you didn’t get a set of instructions, and because you don’t know what to do, they are going to take away your benefits. What are the rules? One of them is to maintain a proper record-keeping practice. You must document, with a resolution, every time your company makes a major decision.
What should you be documenting? Here are just a few major decisions that need to be recorded:
- S Corporation/2553 or 8832
- Equipment Purchases or Leases
- Acceptance of Accountant
- Purchase or lease of Property
- Qualifying to do Business
- Issuance of Dividends/Distributions
- Waiver of Notices to Hold Meetings
We’re willing to bet that some of you didn’t realize these were on the list.
What liability challenges does your business face? Let us know in the comments!