Your LLC can be a great way to protect your personal assets from debts or liabilities that your company may incur. This protection, however, can be lost if your business doesn’t take the proper steps required by state law. Here’s some tips to help make sure that you’re getting the most protection.
1) Don’t Mix Business and Personal Funds
Don’t use business money to pay personal expenses or move money back and forth between your business and personal accounts. The court will presume that if the company can pay your personal expenses, then you can personally pay the company’s debts. Make sure you open a separate business checking account for the company. All business expenses and income must flow through this account. Only business expenses should be paid from this account and only business income should be deposited. When you want “personal” money out of your business, you need to pay yourself a salary, dividend, or a profit distribution–all of which should be properly documented.
2) Don’t Use Unregistered Business Names
Business names are more important than they seem. When you register your LLC, the LLC’s name becomes registered with the Secretary of State. That is then the LLC’s only valid name. If you begin using a business name that is even slightly different from the registered name, you could lose the protections that an LLC provides. If you want to use a name that is different from the LLC’s original name, you must register it as an assumed name with the Secretary of State.
3) Do Stay Within Your Purpose
Most LLC’s have a purpose defined in their Articles of Organization. This may be as broad as “general business purposes” or as narrow as “family cabin ownership.” It is important to know your company’s purpose and operate within it. If the business conducts actions that do not fall within the Company’s stated purpose, the liability limitations for Members can be reduced or lost.
4) Do Observe Record Keeping Formalities
LLC’s are required to maintain records and make annual filings as a normal part of business. Keep your LLC in good standing by filing an annual renewal with the Secretary of State’s office. This can be done by submitting a one-page paper form that you can obtain from the Secretary of State, or by filing online through the Secretary of State website at http://www.sos.state.mn.us/. Either way, the process is quick, simple to complete, and it’s free. Also be sure to follow any requirements for records, meetings, or other formalities required by the company’s Bylaws or other governing documents. Keep employment records for at least 3 years and tax records (including receipts, financial records, and other important documents) for at least 7 years.
5) Do Make Sure Your Company is Adequately Capitalized
Don’t let your company be just an empty shell. If your company has no value to offer to creditors, a judge would be more likely to allow access to your personal assets. Having a liability insurance policy for the company is the easiest way to capitalize, but assets and funds held in the name of the Business also qualify.
For more information, consult the Minnesota Secretary of State’s website, or contact our firm.