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Avoiding “Alter Ego” Problems: A To-Do List

Last year, I wrote (Beware Your Alter Ego) about how entrepreneurs sometimes lose the protection against personal liability supposedly offered by their corporations (or, similarly, their LLCs). This post – adapted from Counseling California Corporations by Continuing Education of the Bar (CEB) – provides detailed recommendations about what should be done to avoid “alter ego” problems.

Recommendations:

  • Hold annual shareholder and board meetings.
  • Hold special board meetings to approve important matters, such as leasing new premises, taking on substantial financial commitments, filling an empty board seat, appointing a new officer or changing an officer’s salary, or considering sale of the company or its assets.
  • File minutes of shareholder and board meetings in the corporate records book.
  • Review developments toward the end of each fiscal year; budget for the coming year; go over the budget with your accountant for tax planning purposes; analyze performance relative to budget quarterly.
  • Sign contracts in the name of the corporation (or LLC), providing the name and title of the individual who is signing on the company’s behalf.
  • Start the business with sufficient capital.
  • Keep business funds separate from personal funds; use business funds solely for business purposes.
  • Negotiate loans and other transactions between the business and any principal on an arms-length basis.
  • Carry appropriate levels and types of insurance based on the nature of the business.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

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