Protecting Your Assets Through Proper Business Formation
We are commonly asked by our clients to form Nevada corporations and limited liability companies. However, when pressed, we often find that many clients do not fully understand what their responsibilities are with respect to a corporation or limited liability company after the entity is formed and they have commenced doing business. We are particularly aware of clients who have followed the current marketing trend of using a non-lawyer entity formation company that throws together a legal entity without any real guidance on how to operate that entity, or what the legal consequences are for failing to function within the requirements of the law. We have seen too many disasters arise from such situations. This article is intended to help simplify some of the most important issues a businessperson should consider when conducting business with these highly popular entity types and why it is so critical that any serious businessperson obtain advice and guidance from a real, licensed Nevada attorney.
Understanding The Basics
Nevada has some of the best laws and protections available in the entire country for its corporations and limited liability companies. Those advantages are the subject of wide-spread discussion in articles and marketing pieces – some fact and some (unfortunately) fiction. That said, most of our clients have already come to the conclusion that they want to incorporate in Nevada and some feel that having the Nevada entity is all they need to do in order to enjoy the benefits they offer. This is not true! There is much more to obtaining the asset protection benefits of operating a business under the form of a Nevada corporation or limited liability company than simply forming the entity and doing business under that entity’s name.
In order to maximize the benefits of the use of these entities and obtain as much protection as possible, one must avoid many pitfalls that business owners commonly fall into, particularly when operating small, closely-held businesses.
Nevada and its neighboring states, such as California (whose case law is very influential in Nevada courts) have very well-established bodies of law which describe circumstances in which a court may be inclined to allow a plaintiff (bringing a claim based on a tort, such as a personal injury or fraud claim, or a contract-based claim, such as a collection action) to pierce through the “veil” of protection generally afforded by a corporate entity and find personal liability for a principal or shareholder of that entity. Under similar principles, a plaintiff could be permitted to pierce through one entity to find another affiliated or sister corporation or limited liability company liable for the affiliated company’s acts.
The so-called “veil” of protection that exists for shareholders of corporations and, similarly, for members (owners) of limited liability companies, is a creature of state law that is premised in part on a policy of allowing business owners to have an incentive to operate a business and promote general commerce but operate that business through a separate “person” or entity (such as the corporate form), which separate entity (the corporation or LLC) is generally responsible for the acts of the business and its liabilities, as opposed to the business owners (the stockholders of LLC members) themselves. This arrangement is very attractive for business owners and highly recommended by legal counselors.
Contact Us Soon To Discuss Precautions Every Business Owner Should Know
So what are the rules that a business owner should take pains to follow? Ensuring that you have properly maintained the corporate (or LLC) entity as a “separate” entity (and not as an alter ego of the business owner) if faced with an argument that their corporation’s veil should be disregarded is foremost. To understand the specific application of any of these and other vital factors, legal counsel should be consulted for successfully forming your business entity or establishing your startup. Call Albright, Stoddard, Warnick & Albright in Las Vegas at 702-854-2791 or send us an email to arrange for a consultation soon.