by Mark Snitchler

While in a marriage "what is yours is mine" may be the common practice, the same does not hold true between the business owner and the business assets.

Most startup and small businesses are long on ideas and concepts, but unfortunately short on cash.  As a result, many business owners make the critical mistake of using sound counsel sparingly in the formation and initial operations stage of the business.  Money should not freely move between the business and its owner without a business purpose. And when funds do move, they should be documented as to the reason and conditions for the disbursement. Likewise, debts unrelated to the business should not be paid by the company; but if they are, there should be some business purpose and the transaction must be documented.  Finally and consistent with this distinction, an owner signing on behalf of the company must have his signature followed by a title or some other designation to show that the document is offered on behalf of the entity, not the individual. A person signing an agreement will be presumed to be signing in her personal capacity unless the writing clearly shows that the person approved the document in a representative capacity.

In the state of Michigan, it is not necessary to have a lawyer prepare and file the initial organizing documents for a new company. However, the small business owner working without this type of counsel may not receive the full counseling they need regarding the risks of not maintaining a "bright line" between the business owner and her corporation.  To take full advantage of the personal protections offered by conducting business through the corporate form, it is necessary for the owners to maintain a bright line between the financial activity of the company and their own. Generally, Michigan Courts will not disregard the corporate existence (referred to as "piercing the corporate veil") unless the corporate entity is a mere "instrumentality" of its owner.

To avoid any unpleasant surprises, your legal and/or accounting professional should review your practices and procedures to asses your personal risk of being held personally responsible for your company's financial obligations.