How to Protect Your Personal Assets from the Business

Many dental and medical practices protect their personal assets by operating as a corporation or as a limited liability company.

Running your business as a corporation or a limited liability company can protect your home, your car, and your savings from being seized to pay for business debts. All that’s at risk is the money you put into the business and any personal guarantees of corporate debt.

But, this is only true if you follow the proper guidelines. When you stop acting like a corporation, you may expose your personal assets to needless risk.

Operating the business as a separate entity is important to protect your personal assets. To make sure that you do, let’s review some helpful guidelines.

Business Name

Use the full and correct name of your business in correspondence and contracts.

If your corporate name is “John S. Doe, D.D.S., P.C.”, don’t just use “John S. Doe, D.D.S.”

It would also be a good idea to check your business cards or other patient promotional information to be sure that they too contain the full business name.

Bank Accounts

Maintain separate bank accounts for your business.

Have the business name printed on all checks and be careful not to mix business funds with your own personal funds.

In addition, it’s important not to pay personal expenditures from the business checking account. Personal payments from a corporation run the risk of being classified as a corporate dividend, which is income to the recipient and not deductible by the corporation. The result is that money will be taxed twice.

Signatures

Always sign documents and letters as an officer of the business.

For example, a contract should be signed this way:

Mary A. Jones, M.D., P.C.
By: _____________________________
Mary A. Jones, M.D., President (Sign as an officer or member)

Property Transfers

If you transfer property to the business (such as a computer or furniture), formally document the transfer by a bill of sale or an assignment.

Leases

If you lease a car, building, or other property to the business, the board of directors or members should approve the transaction and a lease should be signed.

Loans

Sign promissory notes if you loan money to or borrow money from the business, and have these transactions approved by the board of directors or members.

Employment

The owner/shareholder should have a written employment agreement approved by a board of directors’ resolution.

Taxes

Pay federal and state withholding taxes promptly. Officers, directors, and principal employees of a company may be personally liable for payment of withheld taxes if the corporation fails to pay these obligations.

Corporate Records

Keep your corporate record book up to date. At least once a year, hold meetings of shareholders and directors.

Your corporate record book should contain either minutes of these meetings or resolutions showing actions taken.

Some of the information these records should contain include salaries set for the key employees, bonuses declared during the year, contributions made to the retirement plans, equipment purchases, loans obtained and any decisions made by the board of directors.

Cosigning

If the business borrows money from a bank and you’re asked to cosign a promissory note, be sure you fully understand the extent of your personal liability in case the business fails.

Annual Reports

File the annual report on time with the proper state authorities. Otherwise, you may face fines and even the dissolution of your business. This form, the Michigan Annual Report or referred to as the M.A.R., is due in May of each year. Typically, you will receive this form in the mail, which requires an update to any changed information, your signature, and a check.

Stock Transfers

Before you transfer stock or sell additional shares, get legal advice so you don’t run afoul of federal and state securities regulation statutes.

In most cases, an exemption is available, but you don’t want to get involved inadvertently in a nonexempt transfer or issuance. Penalties for noncompliance with these laws can be substantial.

Insurance

Check with your insurance agent to make sure that there is proper liability coverage not only for property owned by the corporation but also property leased to the corporation and your own property that may informally be used for corporate business.

Conclusion

With a little extra effort and a small amount of paperwork, you can benefit from the structure of your business entity and protect your personal assets from the liabilities of the business.

Failing to follow the corporate rules is a risk that’s just not worth taking.