Many advertisements from document filing companies on the Internet tout the benefits of forming a corporation.  The first benefit typically mentioned is that a corporation provides"limited liability" or "asset protection".  Many of these companies would have you believe that if you form your own company for $99.00 you can magically protect your assets from creditors.  But asset protection is more than that.  It is true that limited liability is a major reason for incorporting your business.  The issue not addressed in these advertisement is that filing your articles of incorporation is only the very beginning in protecting your assets.

The basic concept of incorporating is that a creditor will not get to the shareholder’s assets unless there is a reason to "pierce the corporate veil".  One reason for piercing the corporate veil is the failure to follow corporate formalities.  This may include the failure to hold shareholder and director meetings, documenting those meetings with corporate minutes, segregating corporate funds from personal funds and the failure to sign documents as a corporate officer.  Managing your small business corporate governance is a key factor in maintaining your corporate limited liability.

For more information see my legal checklist for starting a business in Iowa or the small business formation page.