Business Bills: How to Avoid Personal Liability

Business Bills: How to Avoid Personal Liability

Business Bills – How to Pay Them

When it comes time to running a business, paying the business bills seems like an easy thing to do, but are you doing it properly?  Many businesses fail to pay their business bills correctly and therein expose themselves, their shareholders and others to liability.

I will show you how to pay your business bills correctly so you can avoid personal liability.

Pay Bills

In addition, you will learn how to protect others and your hard earned personal assets (such as your home, car, personal bank account and more) from potential predators who would love to come after you and your personal assets to satisfy a company debt, judgment, etc.

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Recognize your corporation (or LLC) as a separate legal entity and treat it as such

Why?   The answer is simple.

Your corporation (LLC, S-corp, C-corp) provides you with personal liability protection.

This means your corporation protects you against being personally liable for the debts of your business.

In order to maintain the protection from personal liability, your corporation must be treated as separate and apart from yourself;  your corporation is one entity and you are another.

Separate Bank Account

Deposits

Cash Register

Under NO circumstances should your personal funds, assets, or accounts be mixed with your corporation funds, assets, or accounts.

So, if you get a check from a customer or client, you need to deposit that check into your business account, not your personal account.

The corporation funds should not be used to pay personal expenses, to make personal investments, or for any other purposes not related to the corporation’s business.

Mickey Mouse

For example, if your family wants to go to Disney World, your corporation should not be paying for a family trip.  Such a trip must be paid out of your personal funds.

Statute of Liberty

On the other hand, if you are going to meet a client in NYC, then your corporation can, and should, pay for the travel expenses to and from NYC, because this is a business expense.

Checks

Pay your business bills with business assets.  Pay your personal bills with personal assets.  Keep it simple.  And so keep you safe.

Distributions

The corporation’s assets should be distributed to owners only in the form of compensation, distributions to pay income taxes, or other distributions specifically approved in advance by the owners, and in the case of an LLC, its members.

Fund your corporation

Make Money while Traveling

It is important that you fund your corporation initially with enough money of its own to give it a chance of being successful.  The initial business bills will usually consist of (i) the filing fees to incorporate/form your new entity, (ii) legal fees to your business attorney, and (iii) getting a corporate book and seal.  See Legal Documents, Top 10 “Must Haves” for your Business.

If your corporation needs additional money, you can certainly put in more money.

If you have investors in your corporation, you will most definitely want to consult with an experienced business attorney and accountant who can provide you with sound legal advice and counseling about valuation, timing of putting more money in, dilution, and how to go about getting more money into your corporation.  Learn How to Protect Yourself from Losing Control of Your Company.

Separate Entity to the World

Your corporation should be held out to third parties as a separate entity.  What does that mean?

It means that all of your business should be conducted in and through the name of your corporation.  Specifically, the name of your corporation should be used on all agreements, contracts, leases, orders, business bills, and other arrangements entered into by the corporation.

Your business name should also be used on all products, signs, advertisements, listings, letterhead, websites, business cards, telephone directory listings, and the like.

Remember, your business is not you.  It’s a separate legal entity.  It’s separate from you.

Insurance

Your corporation should also carry its own insurance, separate and apart from your personal insurance policies.

Again, these business bills should be paid from your business assets, your business bank account.  Get in the habit of writing business checks for business bills.

Taxes

Taxes

Your corporation will have its own Employer Identification Number (EIN) from the IRS, which is like a Social Security Number, but for businesses.

Your corporation will be required to file its own income and employment tax returns.  It’s best to consult with a tax adviser when it comes time to file your tax returns to ensure they are done properly.

And remember that payment to your corporation’s accountant should be paid from your business assets.

Agents of the Corporation

The corporation can only act through individuals.  Whenever you take action with your corporation, you are acting as an agent of the corporation, and not in your personal/individual capacity.

It’s vital that you make it very clear that you are acting in an agency capacity to avoid incurring personal liability for the obligations of your company.

So how do you make it clear?

Signing Documents

Signing Documents

The way to make it clear that you are acting in your capacity as an agent for your business, as opposed to individually, is by the way you sign your documents.  What do I mean?

You need to sign your company documents as an officer, director, owner, agent, etc., of the corporation.  For example, when you sign a document for your business, you need to sign it on behalf of the corporation.

Here is an example of what your signature should look like:

Sincerely,

[Name of your corporation]

By: ______________________

Your Name:

Your Title:

Notice that the signature line entails the (i) name of your company, (ii) your individual name, and (iii) your title in your business (owner, CEO, Board of Director, etc.).

By including the name of your business, you are making it clear that you are signing on behalf of a corporation.  By including your name and title, you are telling the world that you are signing in the capacity as an owner, CEO, Board of Director, etc.

Remember, if you sign as an individual, then you potentially expose yourself to personal liability.

So, be sure to sign all of your corporate documents with your (i) company’s name, (ii) your name, and (iii) your capacity as an owner, board of director, CEO; whatever authority you have been given to sign on behalf of, and bind, the corporation.

BizandTravelBlog.com is published by Virginia K. Sourlis, an attorney licensed in the state of New Jersey. This site does not provide legal advice and it does not create an attorney-client relationship with anyone. This should not be considered legal advice. You should seek an attorney for your own situation. This website is for informational purposes only. Any and all views and opinions expressed on this site are solely those of the author and do not reflect the views of Virginia’s law firm. BizandTravelBlog.com is not associated with any organization, group or institution, unless otherwise specifically noted.
I have not received any compensation for writing this post. I have no material connection to the brands, products, or services that I have mentioned. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”
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