Top 6 Ways Your Company Could Lose Its Corporate Veil: Is Your Business at Risk?



Small Business Compliance Checklist

If you’re like most small business owners, you probably spent days, if not weeks, mulling over how to incorporate your business. You meticulously filed your legal paperwork with the state to set up a proper legal foundation. But then, once your business launches, things move at a break neck pace. Your days are filled with finding clients, managing employees, building your products or services, and it’s easy for some legal obligations to slip through the cracks.

Incorporating or forming an LLC is an important first step for minimizing your personal liability and protecting your personal assets. But, it’s just the first step. You’ve got to continually keep up your company’s legal ‘good standing’ with the state. If you don’t, you can be fined and even have your business administratively dissolved by the state. In addition, a plaintiff can try to pierce your corporate veil in court, putting your personal assets at risk.



Small Business Compliance Checklist

The good news is that it’s not hard to keep your company in good standing. The following small business compliance checklist contains the key steps for staying in good standing with the state:

1. File Your State Paperwork on Time

After you form an LLC or corporation, you’ll most likely need to file some kind of annual report or annual statement with your state, along with paying a modest fee. The requirements and deadlines vary by state (and a few states don’t have a requirement at all). You can check with your state’s secretary of state office or an online legal filing service to learn your specific requirements. Get this paperwork in on time. It’s very simple to do, but forgetting to do it will result in late fees.

In addition, if you make any changes to your LLC or corporation, you need to file an Articles of Amendment with the state (note that the exact name of the form will vary among states). What kind of changes require an amendment filing? For example, if you authorize more shares for a corporation, if a partner or board member leaves, or if you change your official company address.

2. Keep Your Personal and Business Finances Separate

If you have a personal or business accountant, they’ve undoubtedly advised you not to mix your personal and business finances. Keeping a sharp line between the two helps you stay organized, facilitates your tax records, and helps you better understand how your business is performing. In addition, corporations are required by law to separate their business and personal finances. If you commingle your personal and business finances, a plaintiff suing your business could come after your personal assets.



3. Keep Your Registered Agent and Address Current

Many small businesses – particularly home-based businesses – use a registered agent when they first set up their corporation/LLC. This allows you to keep your home address private and provides peace of mind that you won’t miss an important mailing from the state. However, at times, busy owners forget to pay the fees for the Registered Agent. As a result, the agent stops representing the company, official mail is sent back to the state, and then the state puts the company in bad standing until it updates its address of record.

4. Sign All Business Contracts with Your Proper Business Name

If your official company name is COMPANY Inc., you need to fill out every business contract as Company Inc. Even if you reference your company with a slight variation like Company, this can be a problem. So, be careful and always use the exact name that you used on your business formation documentation.

5. File a DBA for Any Name Variations

If you operate your business under any variation of your official company name, you will to get a Doing Business As (DBA) for those variations. This is also called a Fictitious Business Name. If you don’t file this paperwork with your local government, then your business is improperly operating whenever you use a name variation in an official capacity.

6. Register to Operate in Another State

If you conduct business in another state than the one where you formed an LLC or incorporated, you’ll need to register as a Foreign Corporation/LLC in order to do so. If you don’t file this paperwork, each new state where you’re operating will perceive you as a sole proprietor, meaning you lose any of the personal liability protection of the LLC or corporation in that state. If you’re not sure if you need to foreign qualify, you can contact an attorney or small business expert. Typically, just having customers or clients in another state won’t require you to register in that state. However, if you open an office, you will need to register.



As you can see, it’s easy to avoid any of these six pitfalls and keep your LLC or corporation compliant with the state. It takes only a few minutes to fill out your annual report paperwork, but it can take exponentially more time (and added fees) to figure out why your company has been placed in bad standing. In addition, you formed your corporation or LLC in order to protect your personal assets – don’t place them at risk by failing to keep up with your basic compliance requirements.

Veil Photo via Shutterstock

CorpNet offers business formations, filings, state tax registrations, and corporate compliance services in all 50 states. Express and 24 hour rush filing services available upon request. Click here to learn more.

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Nellie Akalp Nellie Akalp is a passionate entrepreneur, business expert, professional speaker, author, and mother of four. She is the Founder and CEO of CorpNet.com, a trusted resource and service provider for business incorporation, LLC filings, and corporate compliance services in all 50 states.

One Reaction
  1. Have someone who will look after this to make sure that everything is in order and you manage to file all of your paperworks on time.