One of the main reasons that small business owners decide to incorporate is to protect their own assets by separating their business dealings from personal dealings.
But would it surprise you to know that just incorporating isn’t enough?
Yes, the process of incorporating alone does officially separate you from your business, but you are responsible for carrying out certain duties in order to uphold your end of the agreement as a corporation.
Meaning, if you don’t do what you agreed to do as a condition of incorporating, your protection agreement could become null and void.
Below we’ve listed a few scenarios that could bring down the protective barriers of incorporating your business.
Full disclaimer: We aren’t lawyers and are not trying to offer legal advice. Please consult with a law professional for guidance through this matter.
This one should be a given. There’s no faster way to render any agreement voided than by participating in misconduct, fraud or any other type of illegal activities. Enough said.
You Haven’t Separated Personal and Business Accounts
Continuing to use money out of personal accounts for your business is a no-no. The point of incorporating is to separate these two anyway, right? Why are you asking to protect your personal assets while still using them for business dealings?
One of the easiest ways to be in compliance is to open a business bank account. You uphold your end by using the business account for business and keeping your personal accounts out of it; then your personal account will remain protected.
Not Carrying Out Corporate Duties
There are certain formalities that go along with the type of business entity you’ve formed.
These could be anything from filing annual reports to choosing corporate officers. When you formed your corporation, you agreed to carry out any and all of these duties in order to stay compliant. So if you drop one of those balls because you didn’t have time or didn’t think it was a big deal, you should not be surprised when your protection is taken away.
Don’t Record Minutes
Recording minutes is one of the simplest ways to stay compliant, but can also be an easy one to overlook or not give as much priority to.
Make sure the minutes that you record are as detailed as they can be. If enough detail is not there, it could be enough to put your business in the non-compliant zone.