Mark Kohler explains how to protect yourself from personal liability when running an LLC or corporation. Keep proper records, use the company name on contracts and marketing, and put assets in the company's name, not yours. These steps maintain the corporate veil that shields your personal finances.
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Hi, Mark Kohler here with another two minute tax and legal tip. Let's talk about the corporate veil. Protecting yourself in a corporation or llc, limited liability company. Now just this week I had a phone call from a client, said, mark, I was at a presentation and they said that I can get sued personally even if I have an LLC or corp and they don't protect you anyway. I was like, what? That's ludicrous. Now if you have an entity and you don't protect it, it is true that you can get sued personally. That's what this protecting the corporate bail is all about, whether it's an LLC or a corporation. So let's go through four ways to prevent you from getting sued personally and protect you with the corporate bail. Number one are corporate records. Corporate records are critical and I'm talking about an LLC or a corporation. It's not just one sheet of paper. You've got to file all the extra paperwork into a record keeping corporate book. With an LLC that means an operating agreement, membership certificates, minutes and organizational meeting. And in a corporation bylaws and your first directors and shareholders meetings and then every year you're going to have annual meetings to update those. Even if you're an llc, it's not just one sheet of paper. Oh, I don't need to call a lawyer or do this or do that or I'll just rely on someone that's not a lawyer and I'll just do it for 99 bucks. Folks, those are the people getting sued personally because they don't even have a bank account for their company or the paperwork to show that it's a legitimate company. Do it and keep good records. Number two, use the company name on all of your company documents and marketing materials. Your company is doing business, not you. So use that company name on your email signature, on your letterhead, on your business cards. You are the president of the company, you are the manager of the llc and then the company name is set forth out there for the world. Use the company name and let the world know that your company exists. Number three, make sure your company name is on all of the legal documents and agreements. For example, in an llc, if you own a rental property, on the lease agreement, it's the LLC that should be on the lease doing business with the tenant, not you. It's the company, the lease agreement. And if you're a corporation and hiring subcontractors or having employment agreements or anything that where you're gonna buy equipment or something like that, on a legal contract, it should be the company name on the contract, not you. Be careful when you put your name out there because then it can suck you into a lawsuit personally if you're not letting the company do the legal document Number four, Make sure that your company is on title to any assets or equipment the company owns. For example, back to a rental property. Should your name be on title? No, no, no. The LLC should be on title. Just this week I had a phone call with a client that had an LLC and a rental property and the LLC wasn't even registered to do business in that state and the rental property was in the name of my client, not the llc. Do you think they're going to get any protection if there's a problem? None whatsoever. So make sure that you transfer title even after closing into the llc. Don't worry about the due on sale clause. There's exemptions for this and many, many mortgages. And as long as you're paying the mortgage, the banks aren't going to care. And worst case scenario, you put it back in your own name if the bank has a problem or you need to refinance down the road. But get that title transferred into the LLC and look out for transfer tax in certain states. But 98% of the time you're going to be fine and that's going to open up that protection that the LLC is there for you. And in a corporation, if you're buying equipment or some supplies or certain things where you need to hold title in the name of the company, make sure that the company is the one doing business again and not you. In summary, the corporate veil is powerful. It's been around for hundreds of years and it will protect you. In an LLC Limited Partnership Triple LP Corporation S Corp C Corp. The same principles apply, but you've got to take care of it. If you don't protect the corporate veil, it it won't protect you. Thanks for watching and if you love that video, I've got a lot more. Please subscribe to my channel and I shoot weekly videos that can help you in your business, personal life and better live your American dream. Also, check out my newsletter free newsletter every week with blog articles, tips, strategies, tax deadlines. You'd love it. 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