Corporate veil

Bolster Your Company’s Corporate Veil Against COVID-Era Liabilities


Must-Do Summer Homework For Business Owners

By Judith Bachman

Just as teachers assign students summer homework to keep kids’ skills sharp, business owners too must do some corporate homework this summer to ensure their corporate shield remains strong in light of the COVID landscape.

judith bachmanThe corporate veil shields the personal assets of shareholders of a corporation (or members of a limited liability company (“LLC”)) from the reach of the business’ creditors, judgments, and liabilities.  Without this shield, individual owners’ assets could be garnished to satisfy the business’ obligations.

The corporate veil may be pierced, and personal assets put at risk, if the business does not operate as a stand-alone entity, known in the parlance as being an ‘alter ego of its owners’.  To avoid that alter ego designation, here are key steps to take:

Observe corporate (or LLC) formalities

  • Prepare resolutions/consents for corporate or LLC actions
  • Have by-laws/operating agreement and keep them updated
  • Maintain stock or membership ledgers
  • Hold initial and at least annual meetings of directors/managers and officers
  • Maintain status with NYS by filing annual reports and paying fees, etc.
  • Document business activities and store records adequately
  • Operate under the formal corporate/LLC name
  • Sign all documents/contracts under corporate/LLC title

Avoid commingling of accounts, funds and assets

  • Ensure that the corporation/LLC has its own bank accounts; Do not operate out of personal or individual bank accounts; keep business funds in the business account and do not put any personal funds in the business account or vice versa
  • Keep enough money in corporate/LLC bank accounts for the business to function in its daily activities
  • If business owners must lend money to the corporation, those loans are documented by promissory notes with market value interest; followed by actual payback of principal and interest
  • Do not use business credit cards for personal use and vice versa
  • Do not use any corporate/LLC assets for personal purposes
  • File correct and appropriate tax returns for the business

In the case of multiple companies owned by the same owner or set of owners:

  • Each company should have its own organizational documents
  • Each company should have its own bank accounts
  • Each company should have its own employees
  • The companies should not operate out of the same facilities

Judith Bachman is the founder and principal of The Bachman Law Firm PLLC in New City. 845-639-3210,