An Incomplete or Improperly Formed Corporation or Limited Liability Company Can Hurt Your Silicon Valley Business in Several Ways, Part 2: Liability Protection

Filing your Articles of Incorporation or Articles of Organization with the Secretary of State is only the first step in creating your corporation or LLC. Unfortunately, most online business formation services take your money and don't do much more than that for you. And many do-it-yourselfers don't perform the required tasks unless they are somehow notified that additional filings or documents are needed to complete the formation of their entity. Even some business owners that have an attorney form their company correctly initially often fail to keep up the required formalities. The problem with stopping at filing your Articles, or even your initial formation documents, is that if you do not treat the corporation or LLC properly, then the courts can do what is called "piercing the corporate veil" and look through the company to the business owners for liabilities of the business. Some of the basic formalities required in order for the courts to maintain the liability shield of a corporation include: • Holding annual meetings of the shareholders and the board of directors. • Maintaining the corporate minute book, including organizational minutes, corporate resolutions authorizing or ratifying major decisions, and minutes of annual shareholders and board meetings. • Issuing and canceling stock certificates as appropriate and maintaining an accurate stock ledger. For both corporations and limited liability companies, requirements include: • Having bylaws for a corporation or an operating agreement for an LLC. • Not commingling funds with personal funds or funds of another entity, including maintaining separate bank accounts, paying company expenses out of the company only, and not running individual expenses through the company. • Making required Secretary of State filings. • Filing federal and state business tax returns. • Making required federal and state securities filings

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