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Incorporating a Business? What You Need to Know to Ensure Your Limited Liability Protection
Published on Jan 20, 2012
Read 'Incorporating a Business? What You Need to Know to Ensure Your Limited Liability Protection' at 'Time to Start Up,' the small business blog by BizFilings.
When you’re incorporating your business, whether it’s a Limited Liability Company (LLC), S corporation (S corp), or another business formation, there are at least two things you’ll need to do to properly set up your company.
Filing incorporation documents within the state you’re doing business in is critical. Even if you choose to incorporate in Delaware because of the many business advantages it offers, you’ll still need to incorporate in the actual state you’re physically doing business — often referred to as your home state. If you have multiple states where you have a physical presence, you’ll need to incorporate in each of them. Incorporating in any state other than your home state is called Foreign Qualification.
Once incorporation documents are filed, many small business owners think they’re done. This is not the case. It’s true that your company is officially formed, but if you want to ensure that your limited liability protection remains intact, you’ll have to conduct business in a certain way.
Obtaining an Employer Identification Number (EIN)
The key next step is setting up a bank account, but in order to do this you have to file a form with the IRS to attain an Employer Identification Number (EIN). This Federal Tax ID number is what will enable you to open up a bank account in the name of your company (or its DBA name). It’s very important that your business transactions are kept separate from your personal bank account.
Clients and customers will need to make payments to the business, or DBA name, and all funds should be deposited in the business account. If there’s a hazy middle ground where checks are being made out to you and deposited into your personal checking account, this may compromise your limited liability protection.
What is Limited Liability Protection?
One of the major benefits of incorporating, limited liability protection protects a business owner against being held personally responsible for their company’s debts and liabilities. With limited liability protection, creditors cannot pursue the personal assets (home, savings, etc.) of the business owner to pay off business debts.
We’re Here to Help
If you have questions, or would like assistance with incorporating your company, feel free to give our customer service team a call between 8am and 7pm CST, at 800-981-7183. Or, send us an e-mail anytime. We’re always happy to help.