You're Incorporated, But Now Act Like A Company

Previously, I spoke at a small business roundtable discussion hosted by the Park Ridge Chamber of Commerce. Among the topics I discussed where the pros and cons of a small business forming a corporation or LLC, commercial lease negotiations and pitfalls small business owners make which subject them to personal liability on business debt, including leases, credit cards, venders, employees and the IRS.

When people open businesses, they think by just calling themselves a business name, separate from their own, they are absolving themselves from liability. However, that is not the case. It is not that simple.

First, you do need a corporate entity - you can be a corporation, a Limited Liability Corporation or a Limited Partnership. You set that up with the Secretary of State of your state. Paperwork is involved, and money will be charged by the state. However, that is not enough. You need to then use that designation in your name. So if you are John's Painting, and you formed a LLC, you need to use “John's Painting, LLC” in all of your advertisements, on your invoices, in anything that is out there so your customers are on notice that they are dealing with an entity, not you as the owner directly. If the customer has a beef with John, who they think is a sole proprietor, and they have no reason to think John is actually an officer of the company, they can sue John. And the judge may side with them, against you.

Next, as a business owner, you have to watch what it is that you sign. Did you sign a lease or a contract in which you personally guaranteed the debt or lease? All credit cards and bank loans will require a personal guaranty. That puts you personally responsible. Additionally, most commercial leases and other lines of credits have the guaranty language in the contract. Read it.

Then, watch how you sign the contract. Always sign a commercial contract as an officer of the corporation. Here is an example:

Jane Smith, not individually but as president of Jane's Designs, Inc.

Got it?

Any questions, please call me.