The Ultimate Shield Protections of Incorporating

Eric M. Douthit

Author: Eric M. Douthit

POST DATE: 1.10.17
Ccha  Business Services

One of the primary concerns of business owners is their personal liability. Liability insurance and risk management practices are important weapons to protect business owners from personal liability. The ultimate shield, however, is incorporating. By incorporating a business, a separate entity is created that has all the powers of an individual but is distinct from the owner. Generally speaking, in a properly filed and maintained entity, a creditor cannot hold the shareholders, directors or officers personally liable for a corporation’s debts. The only risk is their investment in the company.

Corporations, Limited Liability Companies and Limited Liability Partnerships offer the most protection from personal liability. Business owners should work with their accountants and attorneys to determine the type of entity which best suits the company’s particular structure and operations. Business owners should then implement and maintain incorporated status as follows:

  1. File Articles of Incorporation with the Secretary of State: In Indiana, the filing fee as of July 1, 2016 is $100.00 for Articles of Incorporation or Articles of Organization. Once filed, state law affords the business owners liability protections.  
  2. Maintain the Corporate Status: The Company will need to file its business entity report timely. The Secretary of State requires for-profit companies to file a report every two (2) years, while not-for-profit entities must complete the report annually. Assuming no major changes have taken place, the business must merely sign, pay the appropriate fee, and return the form to the Secretary of State. The fee is $50.00 for for-profit entities and $30.00 for not-for-profits. The fees will often be reduced when the filings are completed online.
  3. Avoid the Pitfalls: The other requirements to maintain personal liability protection are not quite as straight forward. Through the years, the courts have developed a laundry list of dos and don'ts for the small business owner. The basic premise is quite simple:  treat the business as an entirely separate entity from one’s self. Should one fail to do so, the courts may “pierce the corporate veil” and the business owners may lose the corporate liability protections.

Incorporating is vital to the protection of entrepreneurs. Given the limited costs to incorporate, along with the tax flexibility that a well-planned organization can provide, there exist very few situations where a venture should not seek this protection.  A well-maintained shield can protect the business owners’ wealth from even the most vicious liability. 

For more information or for assistance in incorporating a business or to discuss other issues related to your business operations, contact us.

To learn more about Eric and his practice, please visit his profile.