Hans Kasper, MS-CPA, PS

Act Like A Corporation
 

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How To Be Personally Liable For Your Corporation's Debt.

Just because you form a corporation does not mean you will have the liability protection a corporation provides.  Lawyers may be very good at what is called “piercing the corporate veil”.

In Washington, all it takes to form a corporation is to file two copies of the Articles of Incorporation and a Consent to Serve As  Registered Agent with the Secretary of State and to pay the filing fee.

It requires much more to act like a corporation.  Even if you have incorporated your business, your failure to act like a corporation can subject you to personal liability for the operation of your business.

When you operate your business like an individual or a sole proprietorship, or when you do not hold yourself out to the public as a corporation, the fact that you have formed a corporation will not protect you against liability.

To act like a corporation, you should:

  1. Have an organizational meeting of the Board of Directors.

  2. Adopt formal, written by-laws.

  3. Elect officers.

  4.  Keep written minutes of the organizational meeting.

  5.  Apply for a tax identification number (called an Employer Identification Number) by sending Form SS-4 to the IRS.

  6. Transfer assets to the corporation which constitutes the initial capital contributions of the shareholders.

  7. Obtain appropriate local and state business licenses.

  8. Include the corporate name on your letterhead, bills and printed materials.

  9. Maintain proper accounting records.

  10. Advertise as a corporation and otherwise give notice that you are a corporation.  This may be especially important if you have been operating your business prior to incorporating.  Your old customers and clients need to know your business is now a corporation.

  11. Hold regular Board of Director’s meetings.

  12. Hold annual shareholders’ meetings.

  13. Keep minutes of annual meetings.

  14. Issue stock certificates to the shareholders even if one person owns all the shares of  stock.

  15. Maintain a stockholder’s ledger.

  16. Open a bank account in the name of the corporation.

  17. File any required quarterly or annual tax returns.

  18. Treat yourself as an entity separate from the corporation.

  19. Do not commingle personal and corporate assets.

  20. Sign your business documents in your capacity as an officer of the corporation and not as an individual.  For example, sign as “John Doe, President”, not just “John Doe”.

  21. Keep your minutes and all corporate records current.  Failure to do this is perhaps the biggest mistake people make.

 Many people set up their corporations, have written by-laws, hold their organization meetings, have written minutes of the meetings, issue the initial stock certificates, transfer the initial capital to the corporations, get a tax identification number, open a bank account, print up business cards and letterhead with the corporate name on them, get proper licenses and go through all the initial formalities.  Then they don’t do another thing with the corporation.  It is important to continue to act like a corporation.

 The above list is not all-inclusive.  It should give you a good idea of what to include in functioning as a corporation.

 


How To Be Personally Liable For Your Corporation's Debt

Below are listed the eleven major mistakes that corporations make which could justify the imposition of personal liability on corporate officers and directors.  You see, as an opposing attorney, the first thing I am going to do to get to you personally is to try to disqualify your corporation.

  1. Failure to have regular board of directors meetings.

  2. Failure to have annual shareholders’ meetings.

  3. Failure to issue corporate stock or maintain the stockholders’ ledger.

  4. Failure to maintain up-to-date corporate records.

  5. Failure to have the required initial organizational meeting.

  6. Failure to adopt corporate bylaws.

  7. Failure to maintain proper accounting records.

  8. Failure to advertise and serve notice that the business was operating as a corporation.

  9. Failure to transfer assets into the corporation.

  10. Failure to get the proper state and local business licenses in the name of the corporation.

  11. Failure to file annual state and federal report forms.

 

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This page was last updated on 05/13/2010

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