Business Entity Mistakes – Criminal Conduct and Independence

Asset Protection

Business Entity Mistakes– Criminal Conduct and Self-reliance

In this age of details, many small company owners understand they need the protection offered by a corporation or restricted liability company. Such security, nevertheless, can be lost though specific actions.

Learn the unseen leg
Source: Flickr

Criminal Action Creating a company entity only safeguards a service and investors from civil liability. Civil liability emerges from a body of state and federal law that enables settlement for supposed wrongs. These wrongs can arise in the form of carelessness, legal breach and so on. If an entity is discovered civilly liable, it needs to pay payment, but no jail time is involved.

Neither a corporation, limited liability business nor other entity will secure anybody from criminal liability. Claims on the contrary published on various web sites are just wrong. An individual forming a corporation to front for a ponzi plan or rip-off to defraud consumers is going to get no defense from prosecution. If you have any doubts on this problem, just think about the current criminal convictions of the Tyco and Enron executives.

Standing Apart Both corporations and restricted liability business are considered to “stand apart” from their investors for legal purposes. In essence, both entities are thought about to be “persons” under the law. This legal fiction is, obviously, what gives rise to the asset security component of both entities. Regrettably, lots of small businesses don’t understand this distinction and lose the asset defense when the most need it.

To preserve the possession protection benefits of a business entity, you should treat it as an independent party. For example, you do not “own” a corporation. Such declarations can return to haunt you when a complainant’s lawyer presents them in court while arguing the entity is a sham. To prevent this problem, you can merely say you are the President of business entity or whatever position you hold.

In Closing Forming a business entity is a required step for most small businesses. As soon as the entity is formed, make sure you follow the required official treatments to maintain property defense.