Follow Corporate Formalities to Protect Personal Assets from Business Liabilities in Florida
Many people create corporations or LLCs, but never follow the corporate formalities – which leaves them extremely vulnerable to losing their personal property if a lawsuit is ever filed against the company.
The liability protection granted by incorporating or forming a LLC is very practical and absolutely necessary. In fact, many people incorporate solely to limit their personal liability when conducting business.
When a Florida corporation or Florida LLC is not managed under the proper formalities, courts are unable to tell whether or not the corporation or LLC is actually its own entity – i.e., separate from its owner and its owner’s assets. If the court finds that a company is not separate from the owners, then the owners will not be protected from liability or from creditors of the company. This means that an owner’s personal assets and business assets can be taken in a lawsuit, just by not adhering to the proper corporate formalities.
These formalities include the drafting of a Shareholder Agreement or Operating Agreement, corporate meeting minutes, resolutions, by-laws, charters and banking records to prove that you have properly followed the requirements of an LLC or corporation. If you have not, you could be found in breach of your fiduciary duties for not following the company formalities.
In addition, you can safeguard the liability protection of your corporation or LLC by:
Executing an operating agreement. An operating agreement helps establish the company as a separate entity from its members in the eyes of a court. Even if you are the sole owner/manager of an LLC, you should create an operating agreement that details your rights and duties. Florida has a statute that acts as a default operating agreement in the event that the LLC does not have one. It is advised to have one custom tailored to your LLC.
Not commingling funds. The limited liability entity should have a separate bank account, distinct and separate from any personal accounts of its members. All company funds should be deposited and drawn from this account.
Documenting transactions with name of LLC. All business transactions should be signed in the name of the limited liability entity , not the name of any individual owner, officer or director.
Maintaining organizational documents. Many courts have considered the absence of any company meeting records to be an indication that the entity is being disregarded and will pierce the corporate veil. There are rules for the proper maintenance of a corporation, LLC or limited partnership that your business attorney can help you ensure you adhere to in order to maintain your limited liability protection.
Having sufficient insurance. A limited liability entity does not necessarily protect you from liability from injury or other claims of third parties. Be sure you have the proper business insurance to protect you against negligence claims.
The best protection against losing your liability protection is to consult with an experienced Florida business attorney to help you draft the appropriate documents and observe the correct corporate formalities for your business.
ABOUT THE AUTHOR: Romy Jurado
Romy Jurado is one of the founders of Jurado & Farshchian, P.L. a business, real estate and immigration law firm. She focuses her practice on business law, including corporate and transactional matters with an emphasis on corporate formation, stock and asset sales, contract drafting, and business immigration. Romy is originally from Peru and moved to the USA with the dream of becoming an attorney and entrepreneur. Romy is actively involved in the community through her work as a Score certified mentor, and speaking at conferences to entrepreneurs and small business owners.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
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