As an Atlanta, Georgia Corporate Attorney, advising CEOs, CFOs, Secretary, Directors, Officers, Shareholders, it is critical you avoid mingling your personal affairs with any business matters, and vice versa. Many new business owners seek to protect themselves from personal liability by setting up corporations, the most popular being Limited Liability Company (or LLC). Regardless, a corporation can only protect you from personal liability stemming from your corporations liability, to the extent, you take care to separate your role in the corporation from your role as an individual.
Generally, the fist step in protecting yourself from debts and liabilities incurred by your corporation is incorporating your corporation (or business). In Georgia, filing the appropriate documents with the Georgia Secretary of State and creating a Limited Liability Company (or LLC) or a Corporation, can provide protection from personal liability. However, taking this action will not give you absolute protection from liability. Additional steps in your behavior, statements, and actions are critical in protecting yourself from being personally liable for debts of the corporation. When you are held liable for debts of the corporation because the company and your personal affairs are to tightly interwoven, is called Piercing the Corporate Veil.
Piercing the Corporate Veil occurs when opposing counsel (or another party) can show that the CEOs, CFOs, Secretary, Directors, Officers, Shareholders, etc. are mingling corporate their affairs with their individual affairs. Doing this is a huge mistake and you should avoid it at all cost no matter what inconvenience it may cause you or what your personal view of the Georgia law on Piercing the Corporate Veil encompasses.
Under what circumstances can I be personally liable for debts of the LLC, or corporation? And, why should I take additional steps for protection?
As a Corporate Lawyer in Atlanta, Georgia, I know from seeing Piercing the Corporate Veil legal proceedings first-hand that taking additional precautions can prevent creditors from going after your personal assets – such as your money or your home – in the event your business incurs debts that it is unable to pay. These debts can include car loans, bank loans, lease obligations, and money owed to lawyers, accountants, etc., for services rendered to the business.
These extra precautions can also prevent plaintiffs from collecting money from your personal accounts and assets to satisfy a judgment against you. A Georgia business could incur this type of liability in a variety of ways, including:
• A personal injury or accident in your office––coffee burn, slip and fall, etc.
• A product or service that injures a client, either physically or financially
• A car accident that occurs when an employee is making a delivery or driving to meet a client in the scope of work.
• Mismanagement of a client’s money
So what are some extra precautions you must take take?
• Georgia law requires corporate entities to file for renewal every year. This is a quick, relatively low-cost ($50.00 annual fee) process that keeps your corporation or LLC active. If you do not renew your business, the Georgia Secretary of State will administratively dissolve your corporation and, therefore, your protection from personal liability.
• Keep your corporate and personal bank accounts separate. Do not use your business account to pay for personal expenses – taking your family out to dinner with business funds, buying presents for your in-laws with corporate monies, paying for a weekend getaway “on the corporations’ tab”, etc.
• Do not personally guarantee any loans or financial arrangements for the corporation if you can avoid doing so. Acting as a personal guarantor opens the door to personal liability, as creditors can look to you to pay the business’s debts.
• Make sure that all of your contracts entered into using your corporate position and then your name in this capacity (i.e. as President, etc.) Do not use your individual name, even if you are the sole shareholder. For Example:
___________________________ Signed, Larry J. Doe, President ABC Enterprises of Atlanta, LLC
• Maintain the proper insurance for your business and make sure that the corporation’s name is listed as the “name insured” on the insurance policy. Your Atlanta, Georgia, Corporate Insurance Attorney should be able to help you with this process. Additionally, keep written records of discussions and of how the insurance agents, lawyers, CPAs, advised you to ensure your business is safe or you want to compare it to another opinion at a different time. A personal umbrella policy might also provide additional personal protection for business owners.