It is important for San Diego small business owners, and those who maintain LLCs, S Corporations, Professional Corporations, Management Service Organizations or C Corporations to protect the corporate veil through governance and compliance.
What is the Corporate Veil and Why is it Important?
The corporate veil is simply the legal protection that separates a business from it’s owners in terms of legal and financial liability. A corporation, under the law, is legally a “separate entity.” A separate entity is like the difference between two separate people. You can’t sue or pursue one individual person for another individual person’s debt. Therefore, a corporate entity establishes an important and separate wall of protection for those who own the company. A creditor cannot pursue the owner of a business personally to satisfy a business obligation (unless the business person has signed personally for the debt or obligation).
However, if the corporate veil is not properly maintained a creditor can “pierce the corporate veil” by establishing that there is no real difference between the corporation itself and those who own it. This opens the door to allow creditors to seek legal and financial action directly against the owners, shareholders and members of the corporate entity. Many small and mid-sized business owners simply get caught up in day-to-day business challenges and activities, and forget to take the steps required by law to preserve their valuable LLC or corporate protections.
How Can You Protect the Corporate Veil Through Governance and Compliance?
What is corporate governance and compliance and how can you protect the corporate veil through governance and compliance? Owners of a California corporation are required to hold an annual meeting of the members, or directors and shareholders. While LLCs may not be required to hold an annual meeting, it is an important discipline to ensure that no creditor may pierce the corporate veil.
The meeting requires notes, and these should include the date, time and location of the meeting as well as those present. The minutes should record any votes that took place, and an update on the corporation’s short and long-term goals. Members or shareholders who are present should sign the minutes. It is important to record any significant decision, action, goal or plan regarding your company and how it conducts its business.
Medical practices and healthcare organizations should be vigilant when it comes to corporate governance and compliance. In addition to the needs of any corporation a medical and/or healthcare-related business must ensure observance of all federal, state and local laws as well as regulatory compliance.
All LLCs and corporations must also file an annual California Statement of Information and pay fees of approximately $25. The statement of information confirms basic name and physical mailing address for the corporation’s agent, as well as the names, titles physical mailing addresses for corporate officers. California requires an annual franchise tax of at least $800. “Franchise” in this instance relates to the enfranchisement of your company’s right to conduct business in the State of California. If you have a California business, you must pay the annual California Franchise Tax.
In addition, changes in federal, state or local laws may require an update to corporate documents. Ensuring that corporate bylaws and the shareholders agreement or operating agreement (LLC) are in compliance with one another is a critical annual corporate task. Your Watkins Firm corporate attorney will help to review and update corporate documents and ensure they are in agreement with each other and compliant with state and federal law.
Proven Southern California and San Diego Corporate Attorneys
The experienced and proven Southern California and San Diego corporate attorneys at the Watkins Firm help you to protect the corporate veil through governance and compliance on a regular basis. These issues are not meant to simply be a chore, or some regular drudgery a business owner must undertake. They are established to preserve the valuable protections of the corporate veil that your corporation or LLC provides. Protecting the corporate veil preserves your personal assets and peace of mind. If you have questions about corporate governance, compliance or duties associated with the protection of the corporate veil we invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
