January 2011

Protecting your assets

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Properly structuring a corporation is essential for liability protection

by Scott D. Calhoun and Stephen M. Phillips
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As a contractor, you probably have chosen to operate your business as a corporation or limited liability company (LLC). Unlike sole proprietorships, such legal entities protect company owners from personal liability. Given the risks inherent in the roofing contracting business, you would be foolhardy not to protect yourself legally from potential personal liability. But merely forming a corporation or LLC is not enough.

What is the corporate veil?

The corporate veil derives from a concept that a corporation is a separate and distinct "person" under the law and, as such, has the same rights and responsibilities as any other person. If a corporation is a separate person, its owners should not be responsible for the corporation's liabilities unless the owners expressly agree to accept personal liability as may be required when seeking bonding from a surety or line of credit from a bank.

To preserve this theory, a corporation has to comply with various legal requirements. Otherwise, it may be possible for a creditor to "pierce the corporate veil" and force a corporation's shareholders to pay the corporation's obligations, which, of course, defeats the purpose of establishing the corporation...

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