By Mark Snitchler

Most startup and small businesses are long on ideas and concepts, but unfortunately short on cash. It's a common theme, particularly in today's business climate with credit difficult to obtain.

As a result, many business owners make the critical mistake of using legal counsel sparingly in the formation and initial operations stage of the business. This can be an easy conclusion to arrive at since in the State of Michigan, it is not necessary to have a lawyer prepare and file the initial organizing documents for a new company. But there is a significant danger there. Small business owners working without legal counsel may not receive adequate counseling on the risks of drawing a line between the role of the business owner and his or her corporation.

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.  Money should not freely move between the business and its owner without a legal business purpose. And when funds do move, they should be documented as to the reason and conditions for disbursement.

Likewise, debts unrelated to the business should not be paid by the company. If they are, there should be some business purpose with clear documentation of the transaction.

Finally an owner signing on behalf of the company must have his or her 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 a personal capacity unless the writing clearly shows that the person approved the document in a representative capacity.

To take full advantage of the personal protections offered by conducting business through the corporate form, it is necessary for the owners to maintain this clear delineation between the financial activity of the company and of their personal lives. Michigan Courts generally will not disregard the corporate existence (referred to as "piercing the corporate veil") unless the corporate entity is a mere "instrumentality" of its owner.

Avoid any unpleasant surprises and have your legal and/or accounting professional review existing practices and procedures. By doing so, these professionals can asses your risk of being held personally responsible for your company's financial obligations.