One of the most advantageous aspects of the Michigan Business Corporations Act and the Limited Liability Act is that protection is created for a business owner’s assets if a company defaults on its loans or has a judgment against it. If a business owner fails to adhere to the law and pierces the corporate veil, however, substantial damage can result. It is helpful to understand what steps a business owner can take to protect him or herself from losing it all.
Signing Your Name on Business Documents
One of the most common areas where personal liability arises is when a business owner signs his or her own name on a document instead of signing on behalf of the company. This can be a particularly hard habit to break because many people are used to signing their own name on checks and letters. It is important to understand that signing a contract in one’s life is not the equivalent of signing a letter or a contract as a business owner. Instead, it is important to make sure that your signature line always contains the name of your company, your name, and your position at the company.
Commingling of Assets
It is common for business owners to fail to maintain separate bank accounts for the company and personal business. When money from the business and personal spheres merges into a single account, the commingling of assets occurs. After commingling occurs, a business owner loses some personal financial protections and can end up facing corporate liability. This is one of the reasons why it is critical for new companies to open separate bank accounts, get checks made, and make certain that any payments made to or from the company are run through the company’s bank accounts.
Contracts Involving Apparent Authority
Apparent authority refers to an action that an employee might take, or a contract an employee might enter into, even if that employee has no authority to do so. These contracts or actions are often upheld and enforceable in court because the employee believed he or she had the authority to, or was perceived to have the authority to, enact them. To avoid problems of this nature, it is critical to select dependable employees who can help minimize your potential liability, and to have carefully crafted employment contracts, corporate structure, and iron-clad rules in place. A business attorney can help you ensure that your business is protected from anything that might lead to your personal liability.
Speak with an Experienced Corporate Law Attorney
There are a number of other ways in which business owners can end up piercing the corporate veil. It is critical, though, to always sign legal documents and contracts on behalf of the company and to always make sure that any money directly comes from and goes to the company rather than any individuals. Following these two practices help to protect individuals from a number of situations that would otherwise lead to personal liability.
If you have additional questions about personal liability in the corporate setting, do not hesitate to contact the Resnick Law today. Our corporate attorneys are prepared to help you with the numerous obstacles that can arise and are focused on making sure that your business runs smoothly and profitably.