Mark Kohler explains the corporate veil, the legal shield that separates your personal assets from business liability. Sole proprietors have no protection, but LLCs, S-Corps, and C-Corps do. Keep the veil intact by titling assets in the entity's name, signing contracts as the entity, maintaining formal records like annual minutes, and marketing under the entity's name.
Chapters
What is the corporate veil? Is it just a principle that applies to large corporations and we think Bernie Madoff or Enron, we're going to pierce the corporate veil and go after some officer or director? No, it applies to you and me on Main Street America as small business owners and it is a huge benefit to us. It's a protection, it's a warm blanket and we want to protect it. So I want to break down the principles and how you can maintain it properly. Alright, let's go to the whiteboard. Here we have this nice little sole proprietorship. Now, 50% of small business owners in America are operating as a sole proprietorship. Cheap, easy, but scary. If you've got that little lemonade stand and someone slips on a lemon peel, they can get right into the business and to you, the owner, your assets, the businesses, assets. Scary. Now it doesn't mean sole proprietorships are bad. You may start out that way and maybe your small business, you're selling something online and you don't need a tremendous amount of asset protection. Well, why do people incorporate or set up an llc? It is to get this corporate veil. Now one of the first principles I want to teach today is that whether you're a C Corp, an S Corp or an llc, limited liability company, it's the same corporate veil principle and the same principles or rules apply on how you protect it. Now I know there's a lot of misinformation out there. LLCs are cheaper and easier. C Corps are better. S Corps are bad, LLCs are bad. Listen, no one's written more books on asset protection and these concepts of the taxation in America than me. And I say that humbly. Get over to Amazon, I put my money where my mouth is, I quote the laws. It's there, let me tell you right now. And I hope you can have the confidence to rely on this. Whether you're a C Corp, an S Corp or an llc, the corporate bail is the same and you protect it the same way. Now what is that protection? That protection is that if someone comes up to that lemonade stand by buys that wonderful little cold cup of lemonade and they slip on a lemon peel, what can they do? Well, they could get at the assets of the business. Maybe you've got a really nice machine there or some tables or something that someone wants. But the beauty is they cannot get outside of the entity and come to you. There is a veil of protection that is the corporate veil. Some think of it like a bulletproof vest, but is it really bulletproof? Can they get through that corporate veil. Yes, if you are negligent, reckless, criminal, and those standards will vary from state to state. Some states have better laws to protect the owners or operators of a business than others. But the, the general principle is, if I'm out there driving drunk on the roads in my Domino's truck or I'm out there stealing money from my patrons in some Bernie Madoff type scheme, they're going to be able to pierce the veil and get around the veil to me. Now, we want to maintain this veil, so that doesn't happen. But this corporate veil is a principle that's been in America for over 100 years. And there's thousands of court cases and statutes around the country giving us this protection as small business owners on Main Street America. So we want to protect it. Let's go into some of these principles that will help us out in the operation of our business. So how can I protect the corporate veil? So here it is, this little warm blanket, and we're trying to protect ourselves. I want to give you three or four principles that I think will help you a lot in the case of a lawsuit. In the event there's a cause of action and you want to do these things before there's a cause of action. I get phone calls all the time, Mark. I just drove over someone at a crosswalk or something just happened at my business. Protect my assets. Let's set up an entity or let's do this or that. Whoa, whoa. I can't start moving things around after the cause of action. Well, they haven't filed a lawsuit yet. No, the cause of action already happened. So if the action that's going to create the lawsuit already occurred, a lot of the asset protection is too late. So. So we want to start now while it's sunshines and roses and, you know, flower petals. I don't know. We want to be careful now. So here's some of the basic things we want to do. Number one, we want to make sure that all the assets of the business are in the name of the company. So I'm going to say assets owned by the company, not you, but by the company. Think of an LLC with a rental property. I want the rental property owned by the llc. Think of a backhoe in your construction company. I want the backhoe owned by the company company and maybe even the company truck or vehicle. So assets owned by the company. That way you avail yourself of the corporate veil. See that? So assets owned by business. The next thing is I want to make sure that your contracts are all in the name of the business. So the contracts are not in your name, they're in the company name. Think of a lease agreement with a rental property. The tenants not renting from me, they're renting from the llc. The lease agreements in the name of the company. And that would include also maybe the copy machine lease, the backhoe lease. They're going to be in the name of the company. The next thing I want to do, and this is so important is I want to do my company maintenance. And this includes even LLCs. You want to do your annual minutes, you want to have a corporate book, you want to have bylaws, an operating agreement, all that good stuff. We have an annual special on this. We do it every year for clients. So it's like done like clockwork. It's extremely affordable. Don't pay out the nose for this. We're like 150 bucks a year to do all these little things like minutes and maintain it for you. Shop around or do it yourself. But you want to do this cmp. I'm going to call it company. Oh, we call it the company maintenance program. But anyway, company maintenance. You're going to do your annual meetings and make. And. And some people go, I don't want, I want an LLC so I don't have to have company meetings. No, no, you want that because it's a great tax write off. I want your family on the board of directors. And you're going to have this board of advisors or board of directors, whether it's an LLC or corporation. Notice I'm not writing in a company type of company name here because I want you to think of it as any type of formalized entity. Now the last thing I'm going to do just here, and there's a lot of things you do. These big four, you're going to be good 99% of the time. But the last one is operate in the name of the business. Let the world know you're a business. The business should be on your website, it should be on your business cards. You shouldn't be out there cutting deals. You'll be like, I'm the president of this business. I'm the manager of this llc. I'm the president of this corporation. So operate in the name of the business and let the world know. In today's name, in today's world of desktop publishing and websites, it's so easy to operate in the name of the business and get it out there, broadcast it to the world that you are a corporation or an LLC and let people know if you're doing these things, what you're really doing is protecting that corporate veil. So take this seriously. A company and a small business structure are two different things. Let me repeat that. I can have a small business as a sole proprietor or I can have the same small business inside an LLC or inside a corporation so the entity is separate from what is that core business. They're two different things and make sure that you bring them together and get the protection you need as you operate your business. Thanks so much for watching that video and I want to be your source for tax and legal strategies. It's hard enough to live the American dream without being out on the web, on Google, trying to find answers to complex questions and just clicking a mouse hoping you got it right. My team and I want to be a huge resource to you, the law firm, accounting firm, my education resources on my site. Please continue to follow these strategies. I know they'll save you thousands. Now click Care if you want to be a part of my newsletter. It's awesome. Weekly updates and deadlines and strategies and tips. Also subscribe to my YouTube channel. You'll love it. And make sure to click the bell icon so you get a little ping whenever there's a new video. And finally, check out my site marjkohler.com with all sorts of videos, probably 70 plus videos, 30 plus hours of content that'll save you thousands of.
