Many entrepreneurs in Ohio choose to form a Limited Liability Company (LLC) or a corporation with a specific goal in mind: protecting their personal assets from business creditors. You may think that once your entity is filed, your home, savings, and personal property are automatically shielded if the business faces trouble.
However, that protection is not absolute. If you ignore the management rules set by the State of Ohio, a creditor can argue that you are not actually acting as a separate entity from your company.
Piercing the Corporate Veil
When a court determines that you and your business are not truly separate, they can start piercing the corporate veil. This legal action treats you and your business entity as the same “person,” effectively removing your liability protection and allowing creditors to attack your personal assets.
4 Common Pitfalls That Negate Your Protection
According to Ohio management standards, several specific actions (or lack thereof) can lead to the piercing of your corporate veil:
Using a business account as a personal bank: Mixing your personal finances with your business account suggests the entity is not separate.
Neglecting annual meetings: Failing to hold required annual meetings for the business can signal that you are ignoring corporate formalities.
Co-mingling assets: Not separating business assets from personal use—specifically use that is not allowed—puts your entity at risk.
Lack of proper resolutions: You must document changes or additions to the business and its assets through formal resolutions.
Don’t Just File and Forget
Creating a company with the State is only the first step. To maintain your protection, you must actively manage the entity according to the law. If you have been ignoring these rules, your personal assets may be at significant risk.
It is vital to talk to an attorney about how to avoid these pitfalls and ensure your business entity remains a valid shield for your personal wealth.