Is your Business in Order for the New Year?
By Jacqueline N. Walton, Esq.
In the New Year, it is once again time to re-assess your businesses. In assessing the “tidiness” of non-tax business issues in the New Year, the following is a brief list of items to take into consideration: (1) updating any lists of shareholders, members, managers, officers and directors; (2) amending governing documents; (3) examining leases to ensure compliance with renewals and deadlines; (4) preparation of corporate minutes and resolutions to reflect transactions and decisions from the past year; and (5) new operating tax laws that may change how you wish to do business (for 2018, you should consult your tax professional regarding the Tax Cuts and Jobs Act).
Another component of “tidying” your Nevada business is to preserve the “corporate veil.” Corporations and limited liability companies offer liability protection to its ownership and/or management through what is known as the “corporate veil.” In general, this means that a creditor cannot pursue the assets of a member or manager of a limited liability company, or a shareholder, director or officer of a corporation for the debts of the entity. However, this “corporate veil” can be pierced, or set aside, by the courts.
Without the corporate veil in place, your business is susceptible to the alter ego doctrine, which is also known as “piercing the corporate veil.” This is a legal doctrine by which courts set aside the corporate protections of a corporation or limited liability company to hold its ownership or management personally liable under certain circumstances.
In order to assess whether a stockholder, member, officer, director or manager acted as an alter ego of an entity, the court examines the following factors: (a) whether the entity is influenced and governed by such stockholder, member, officer, director or manager; (b) whether there is such a unity of interest and ownership that the entity and such stockholder, member, officer, director or manager are inseparable from each other; and (3) whether adherence to the corporate fiction of a separate entity would sanction fraud or promote injustice.
While there is no bright-line test, there are certain practices that a business can adopt, such as keeping separate bank accounts and records for each entity, preventing the commingling of funds and adhering to the governing documents and corporate formalities.
Contact our firm with your Nevada business law needs.