Corporate Shield

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A "Corporate Shield" is the byproduct of forming a corporation. The main reason that people form corporations is to shield themselves and their personal assets from individual liability for corporate acts. Courts allow this benefit only if the corporation is properly run, adequately capitalized, and completely separate as a legal entity. If a court finds that the corporate privilege has been abused, the court may disregard the corporate protection, leaving the corporation’s shareholders (even if only one or two people are shareholders) open to liability for the corporation’s acts relating to that abuse. [1]

The best methods for protecting a corporation's "shield" are:

  • Avoid Tortious Conduct
  • Do Not Treat Corporate Money Like It is Your Own
  • Be Very Careful Changing Business Entities
  • Disclose Your Corporate Status
  • Observe Corporate Formalities

There are other, more complicated methods for protecting not only assets, but personal information about the shareholder/owners. These include off-shore registrations, trusts and holding companies.

References

  1. California Dept. of Corporations
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