Protecting Personal Assets by Forming Corporation



Video Transcript

Hi folks, thanks for stopping by. My name is Greg Robinson and today I would like to discuss with you one of the benefits of forming a corporation, namely, the limited liability that a corporate entity affords its owners.

A corporation is created when the Articles of Incorporation are filed and accepted by the Missouri Secretary of State.

Once the corporate entity is created, Missouri law states that it is a separate and distinct legal entity from its owners. The owners of the corporation are known as the shareholders. Typically, one of the reasons for creating a corporation is to endow the shareholders with limited liability. This idea of limited liability is that if the shareholders actually pay for the shares and the corporate formalities are followed, then the shareholders are only liable for their equity investment for the shares- in other words, the shareholders are not liable for the debts of the corporation.

However, it has been my experience that while clients understand how to incorporate the entity, they sometimes disregard the corporate formalities which must be followed if they intend to obtain the benefits of limited liability.

One of the formalities that must be followed is to hold regular meetings of both the shareholders and the board of directors. The meetings must be memorialized with minutes and kept with the corporate records.

At the shareholders meeting, the shareholders will elect the directors and sometimes take votes on various propositions. The annual shareholder’s meeting is held on the date set forth in the bylaws. Special shareholders meetings may also be held as required.

At the directors meetings, the directors must elect a president and a secretary and other offices as required by the corporation’s bylaws. The same person may be both the president and the secretary.

The management of the corporation is vested in the board of directors. The directors are charged with the long term business planning goals of the corporation. The officers are charged with the day to day operations of the corporation who carry out the directors long term business goals. A corporations articles of incorporation, or bylaws, will dictate the number of directors of the corporation.     

Another formality which must be followed in order to afford the shareholders with the limited liability is the requirement that the corporation’s funds be separate and apart from those of the shareholders. Since a corporation is a separate and distinct legal entity in Missouri, an EIN number should be obtained and a bank account opened in the name of the Corporation.

Another formality which must be followed is that all the business affairs of the corporation should be transacted in the name of the corporation. All the correspondence, contracts, invoices and advertising must be done in the corporation’s name through the appropriate corporate officer, typically, the President.   The shareholder should not be conducting the affairs of the corporation in the shareholders individual name.

Adhering to the corporate formalities will make it difficult for a plaintiff to attempt to pierce the corporate veil and hold the shareholder personally liable for the debts of the corporation.

 

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