| Business owners form business entities, such as limited | | | | bakery owns the truck and operates the business, the |
| liability companies and corporations to protect their | | | | entrepreneur will be liable because he was driving. |
| personal assets from business debts and obligations. | | | | So, you should always have adequate risk and |
| Usually, the owner's risk is limited to the amount | | | | casualty insurance. |
| invested. | | | | Fourth, you can't treat the entity as your personal slush |
| However, you can get into trouble with your entity and | | | | fund. Being in control, you could be liable to its creditors |
| business liabilities can become your personal liabilities if | | | | for paying out or taking money improperly. |
| you don't follow certain rules with your corporation or | | | | For example, you can't pay yourself a dividend, |
| LLC. | | | | remove assets or bleed the entity dry, leaving it |
| First, whenever you're doing business it must always | | | | penniless so it can't pay creditors. You also can't pay |
| be in the exact corporation or LLC name. If you're in | | | | debts the entity owes you and other "insiders" before |
| business as Acme Industrial Enzymes Corporation, that | | | | paying outside creditors. |
| exact name should appear on all of the company's | | | | You can, however, pay yourself your usual salary and |
| checks, contracts, invoices and employee business | | | | other customary expenses. But, be careful about giving |
| cards. | | | | yourself a raise as the ship is sinking. |
| Never use a shortened name, such as AIE Corp., or | | | | Fifth, make sure you follow the formalities of your |
| any other name unless you've filed a fictitious name | | | | entity. |
| registration with the state identifying that the name is | | | | Pay the annual fee so your entity is not |
| owned by Acme Industrial Enzymes Corporation (and | | | | administratively dissolved or terminated. Keep your |
| not the Acme shareholders). And, even then, the full | | | | entity records and documents properly. Actually have |
| name should still appear on all business documents. | | | | member / shareholder and manager / director meeting |
| Also, make sure the fictitious name is actually owned | | | | minutes. Issue stock certificates and adopt bylaws. |
| by the entity and not its owners. | | | | After all, you won't know you have a problem until you |
| Next, when signing for your business, make sure all | | | | need the protection! |
| contracts are in the entity's name, always include your | | | | Finally, avoid guarantees whenever possible. |
| title with your signature (John Smith, President) and | | | | Many times I heard business owners suggest that they |
| cross out terms making the signer a personal | | | | sign guarantees but "know" they're not enforced. |
| guarantor. | | | | Wrong. Guarantees are enforced all the time. If the |
| Recently, I heard of a situation where an owner was | | | | company fails, the holder of the guarantee will come |
| sued when he signed a contract in a slightly different | | | | after the business owner. |
| corporate name and didn't include his title. The creditor | | | | Years ago another lawyer told me that 10 feet of |
| claimed the owner was acting as a sole proprietor and | | | | water over his client's head was the same as 1,000 |
| was personally liable when the corporation didn't pay. | | | | feet. Many owners take comfort in this theory when |
| The owner paid a settlement when a few simple | | | | considering a guarantee. But, remember, even if you |
| changes would have protected his money. | | | | can't pay it, a judgment will prevent you from |
| Third, remember that if you, personally, do something | | | | borrowing money to buy a home or car. |
| that injures another, even on the job, you're probably | | | | You probably won't get out of guarantees for banks. |
| personally liable. | | | | But don't accept them as "standard" in leases and |
| Take, for instance, a one-person bakery. Our | | | | supplier contracts. Often, you can provide a larger |
| entrepreneur rises early to bake the bread, then drives | | | | deposit or play one supplier off against another to |
| around town making deliveries to local shops. One | | | | avoid the guarantee. |
| morning he causes an accident. Even though the | | | | |