Craft Your Corporate Bylaws Carefully
Each state has some form of a Business Corporation Act that governs the lawful operation of corporations and other business entities. If your bylaws do not cover the basic requirement for operation and management of your corporation, by default, the statutes within your chosen state’s Business Corporation Act will.
Maintain Separate Personal and Business Accounts
In order to assure your corporation is treated as a separate entity from its owners, the corporation must maintain its bank accounts separate from those of its owners. You may not treat your corporation’s bank accounts, checking or otherwise, as your personal accounts. Mingling the two may strip your business from the protection it enjoys as a corporation.
File 1099s for Your Independent Contractors
If your corporation uses the services of workers considered independent contractors and not employees, the corporation does not pay employment taxes for those workers, but instead is required to report the payment to the IRS for those services. Use IRS Form 1099-MISC (Miscellaneous Income) to report certain payments made in your business, including payments of $600 or more per year for services performed for your business by workers not treated as your employees.
Always Transact Business in the Corporation’s Name
Always sign corporate documents in your corporate capacity. Sign documents and transact business in the name of the corporation, with your title clearly written next to your name and signature. This will help avoid a claim that the officer should be personally liable for a corporation’s default or other act by a third party who attempts to demonstrate that it was reasonable to believe the officer was transacting business on his or her own behalf because that officer did not sign on behalf of the corporation.
Make Sure Your Board Meets Its Obligations
Your board should meet on a regular basis. After filing the incorporation papers with the Secretary of State, the board needs to adopt organizational resolutions (either at a meeting or by unanimous written consent). These organizational resolutions concern preliminary matters for properly establishing the corporation.
Form a Corporation to Protect Your Personal Assets
One of the key advantages to forming a corporation as your business entity is that if it is properly formed and operated, creditors should not be able to successfully sue the corporation’s shareholders for their personal assets. This is what is known as limited liability. If something goes wrong, the shareholders will have only risked what they invested in the corporation and not their personal assets.