Legal Question in Business Law in Texas

Corporate Shield

Your statement is basically true with several important qualifications. First, merely incorporating by itself will provide little protection. You must be sure to observe corporate formalities; keep up the minutes, maintain separate books and accounts, and make sure all who deal with you and your company are informed as to the corporate status and that the corporation is who they understand they are doing business with. You will need to consult periodically with competent lawyers and accountants to keep, things in shape. Further, you cannot incur with impunity debts within the corporation that, at the time they are incurred, the corporation has little realistic chance of repaying, or you risk being held personally liable. On a practical note, few will extend credit to a corporation with no track record or financial standing. You are likely not going to be able to lease any equipment or office or retail space in the corporate name wihtout a personal guaranty, much less borrow from a bank wihtout collateral or security. Some corporate debts, like unpaid social security trust fund taxes and sales taxes are chargeable to the responsible officers of the corporation if not paid by it. Certain torts (i.e. non-contractual debts) like negligence in causing a car wreck or defrauding someone, even if done with the property of or in the name of the corporation, will attach to the responsible party despite the corporate shield.

Nonetheless, incorporation is often the best route for a business to take, and, if properly maintained, will shile the shareholders from many corporate debts.