Business owners often turn to the legal process of incorporation to protect their personal assets from lawsuits; in essence, raising the ‘corporate shield’. Still, some of the best protective benefits of incorporation are lost when corporate formalities are ignored.

These 5 tips will help you comply with basic rules of incorporation.

  1. “Inc.” is More Than a Name Extension

An incorporated business has the legal right to use “Inc.” after its name. Along with this right, using the “Inc.” designation is a protection, especially when the corporate name is used in writing. All contracts, letterhead, business cards, directory listings, advertising, checks, invoices, and more should use the full company name. Any document signatures should be accompanied by “Authorized Signature”, indicating that the signer has authority on behalf of the company.

  1. Keep Business & Personal Books Separate

The corporation is a separate and distinct entity. Corporate affairs and personal affairs should never mix. Set up a corporate bank account and use this account only for business expenses and income.  Pay yourself from corporate funds, and then pay personal expenses to avoid co-mingling funds.  The corporation can lend money to the owner, or the owner to the corporation, but this loan must be well-documented and repaid as agreed.

  1. Don’t Skip Corporate Meetings

Few business owners would argue that taxes must be paid. But what about stockholders’ meetings? Directors’ meetings? Many small companies fail to hold these meetings as necessary. If the company is audited by the IRS, they will want to see that the corporate bylaws outline meeting schedules and that minutes are kept.

  1. Pay Corporate Debts

For the best chance at success, a business needs capital. Corporations, in particular, require capital to avoid putting the company at financial and legal risk due to large or frequent withdrawals meant to satisfy dividends or payroll. Without capital, corporate officers may find themselves liable for authorizing such payments to stockholders before the company’s debts are paid.

  1. Do the Paperwork

Small corporations can sometimes file for exemptions from laws to which large corporations must adhere. But all corporations are held to certain standards which ensure compliance with state and federal securities laws. For example, a corporation cannot sell stock without SEC registration. Certain disclosures regarding the company’s financial position and associated risks must be provided to investors. Failure to comply with these and myriad laws can “pierce the corporate veil”, causing you to be held personally liable.

Clearly, respecting the corporate shield can preserve the very protection that incorporation provides. In Missouri, the knowledgeable business law attorneys of Quinn Estate & Elder Law are ready to answer your questions about incorporation.