6 Feb

Maximizing Limited Liability Protection – Practical Tips

By Erin E. Rome

February 6, 2019

If you’re a small business owner, you likely understand the concept of setting up your business as a corporation or a limited liability company (LLC) to limit your personal liability. You’ve read or heard from your attorney that forming a corporation or an LLC is an effective way to protect your personal assets from creditors if the business does not succeed as anticipated. So, what practical steps can you take to make sure you’re maximizing your limited liability protection? Here are some brief tips:

1. Remember to maintain a separate identity between the business and yourself. When you sign contracts, leases, purchase orders, or other documents, clearly indicate that the document is being entered into on behalf of your corporation or LLC, and that you’re signing as a shareholder or member of the business. If the signature line lists only your name, write under your signature the word “Member” (for an LLC) or “President” (or other applicable officer title, for a corporation).
2. Make sure you’re using a separate bank account for the business. Deposit all revenues into your business checking account and pay all expenses from this account. Avoid comingling your personal and business accounts. Using the business account for personal purposes risks you becoming personally liable for the company’s debts.
3. Check that you’re up to date on any annual filings. In Wisconsin, corporations and LLCs are required to file an annual report with the Wisconsin Department of Financial Institutions (“DFI”). It’s quick and easy and can be done through the DFI’s website. But if you fail to file an annual report and pay the annual fee ($25 online) for too many years in a row, your business could be administratively dissolved – something you want to avoid if your business is still actively operating.
4. Keep up to date on your business’s state and federal taxes. Work with a tax advisor to make sure you are filing your taxes correctly, and ask him or her for tips on how to maximize appropriate business deductions and depreciation, if appropriate.
5. Pay close attention any time you are asked to sign a personal guaranty. If your business enters into a lease or takes out certain types of loans, there’s a good chance you will be asked to sign a personal guaranty. This can mean that you are agreeing to be personally liable for all amounts owed, even if your business goes under. Make sure you understand what you’re signing, and seek out advice if you have concerns. If there are multiple owners, you may be able to limit your personal guarantee to a portion of the obligation.

If you have questions about your existing corporation or LLC or would like advice on starting a new business entity, an attorney at Palmersheim Dettmann will be happy to assist you.