Thursday, January 13, 2011

Corporate Formalities

Have you ever heard of the legal term “corporate formalities” ? If you own a corporation, an LLC, a partnership or any business entities you should be very well versed in what a corporate formality really is and how it will impact you.

 Under Florida each business entity (for the sake of this article we will use a corporation) you are required to preserve corporate formalities.  What does this mean?  In order to maintain personal
limited liability you must respect the business entity as a human being. Courts in recent years have found ever expanding reasons to hold directors, officials, managers, members and shareholders personally liable for corporate responsibilities. As a business structure such as a corporation you must treat it as if you have given birth to a human being. Under the eyes of the law a corporation is consider to be an individual it can sue and be sued and it can own real estate.  However, have a corporation is a task in itself. 

Typically after setting up the proper corporate structure and getting a Federal Identification Number you are set to start transacting business.  As you are transacting business you must remember like all separate entities/individuals you must preserve its rights. The purpose of setting up a corporation is to have legal protection and privacy. However, if you do not maintain its individuality you may lose these benefits.

Simple things you must remember when maintaining your business entity: 1) keep a separate bank account. If you have real estate owned by a corporation/llc you should collect rents and pay maintenance and taxes from this account; 2) you should not co-mingle funds and assets. An example of this is paying for personal expenses directly from your business account; 3) good record keeping. The purpose for this is for liability reason not only from a legal perspective but also from a tax perspective. You never want to be the one person that is sued or audited and you have no proof to defend your rights. 4) Agency issues. Be sure when you are transacting business that you make it very clear to the third party that you are acting in the capacity given to you by the business entity. And finally, always, always have an annual meeting and pay your filing fees this with the state of Florida.

 If you are unclear as to what implications this will have on you as a business structure or what tax implication it will have on you as a person you should always seek the advice of an Attorney or CPA.

Rachel M. Alvarez

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