16 Aug How to Comply with Requirements for a Corporation under Florida Law
By: Barry E. Haimo, Esq.
August 16, 2016
How to Comply with Requirements for a Corporation under Florida Law
Creating a corporation or limited liability company (LLC) is a useful strategy for protecting your assets from creditors. They can help ensure that your personal assets cannot be levied (or taken away from you pursuant to a judgment against you) if your business goes into bankruptcy or accumulates massive debt.
Like most things, there are exceptions to the rules. Creditors can seize the personal assets of shareholders of a corporation or LLC in limited circumstances . This is called “piercing the corporate veil.” Some small business owners have found themselves in the exact situation they were trying to avoid by forming a corporation.
How do you avoid this?
The best way to prevent creditors from trying to seize your personal assets is by complying with the requirements Florida has set for corporations and limited liability companies. Even failing to abide by the smallest, most intricate detail can give creditors an opportunity to go after your assets. Below are several things that you can do to avoid having creditors pierce your corporate veil.
Understand and perform every corporate formality to separate yourself from your business. Corporations and LLCs should follow all of these policies regardless of threats from creditors. It is extra important, however, to maintain your business as pristinely as possible to avoid discrepancies or anything that can be used against you in court:
- For Corporations: Create/update bylaws, maintain a stock transfer ledger, hold regular meetings to update directors and shareholders, pay corporate taxes and necessary filing fees, complete Florida’s annual report on time (deadline is May 1st).
- For LLCs: Regularly hold and document major business meetings, issue membership certificates to owners, and create/update the operating agreement.
For more details on formalities, be sure to consult with your business attorney.
Keep detailed documentation. For every meeting you hold, record and keep minutes. Store all contracts that your business signs. Ensure that sure every action within your business is accounted for, and be ready to have that information organized and on hand. Even if this information is from 5 or 10 years ago, you never know when it could be necessary to protect your assets.
Strictly separate your assets. Combining or constantly transferring assets between your business and your personal estate is the easiest way to give creditors access to your personal assets you have been trying to protect. Create a separate checking account and credit card for your business expenses, and do not use this account for your personal finances. Keep a log of each account you have so you can prove that they are separate. Conversely, do not use your business account for personal assets and liabilities.
Acquire capital for your business. Set your business up with a solid foundation by gaining capital and investments specifically for that business. As we have discussed in previous posts, starting a corporation may be a good option because venture capitalists prefer to invest in a corporation rather than an LLC. This is often referred to as having adequate capitalization or being adequately capitalized. In other words, a shell corporation will not provide much protection.
Make the status of your business known. If it is not apparent or obvious that your corporation or LLC exists and operates as a business, creditors could question the validity of your business’s status. Create social media profiles and a website for your business. Print business cards and send out a newsletter to shareholders and stockholders. Not only will this information help to ward off creditors, it will also get the word out about your business and work positively for your business’s public relations. In other words, you need to substantiate that you have a business purpose for forming the entity and these actions will help support that.
Even with precise precautions and proper planning, creditors may still make a desperate attempt to go after your personal assets. If you feel that you are at risk or would like guidance in the most effective estate planning strategies for your finances, contact an estate planning attorney today.
Barry E. Haimo, Esq.