When Business and Personal Finances Mix, Courts Can Come After You
Starting a corporation or LLC does not automatically protect your personal assets. That protection only works if you treat your business like a separate entity. If you don’t, courts can disregard the company’s legal structure. This is known as “piercing the corporate veil.” When that happens, your personal home, bank accounts, and investments can be used to pay for business liabilities.
How This Happens
The most common reason courts take this step is when there’s no clear separation between business and personal affairs. Examples include:
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Using one bank account for both personal and business expenses
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Not having or maintaining corporate documents
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Failing to follow company formalities
Once the separation becomes blurred, you may be seen as simply doing business under your personal name—even if you formed an LLC or corporation.
Articles of Incorporation or Organization
These are filed with your state when forming your company. Articles of Incorporation apply to corporations, and Articles of Organization apply to LLCs. They include basic information such as your business name, address, and registered agent.
These are mandatory and always filed with the state.
Bylaws and Operating Agreements
Bylaws (for corporations) and operating agreements (for LLCs) lay out internal rules. These documents are critical when you have multiple owners or decision-makers. They cover:
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Voting rights
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Roles of directors, officers, or governors
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Decision-making processes
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Internal dispute procedures
Some states require these to be filed. Others allow you to keep them in-house. Either way, they serve as evidence that the business is being run independently and properly.
Shareholder or Member Agreements
In corporations, you might also have shareholder agreements. These often include additional rules beyond the bylaws. For LLCs, these same rules are often folded into the operating agreement. The title of the document matters less than the content. Courts focus on whether your agreements cover key governance issues.
Buy-Sell Terms and Exit Planning
These terms address how ownership can change hands. Whether as a section in the operating agreement or a separate buy-sell agreement, these clauses are used when:
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An owner wants to sell their share
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There is a death or disability
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The owners can’t agree and one wants out
Having these rules documented avoids disputes and shows the business is following formal procedures.
Meeting Minutes Show You’re Paying Attention
Even if you’re the only owner, you should document major decisions through meeting minutes. These notes show when decisions were made and by whom.
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For corporations: shareholder meeting minutes
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For LLCs: member meeting minutes
Governments and courts like to see at least annual records, even for solo businesses. They demonstrate that the business is being taken seriously as its own entity.
Protecting What You’ve Built
Legal separation isn’t just a formality. It’s a shield between your personal finances and your business risks. Keep that wall strong by maintaining the right documents, using separate accounts, and holding regular meetings—even if they’re just with yourself. That way, you’ll make it harder for any lawsuit to get past your business and into your personal life.
Video Transcript:
Courts May Set Aside Your Legal Protections
An LLC or corporation does not protect you by default. If your business and personal matters overlap, a court may set aside that protection and reach your personal property. That means your home savings and investments could all be at risk. The way to prevent this is by keeping your company entirely separate from your own.
Legal Documents Are More Than Formalities
That starts with maintaining the right records, articles of incorporation or organization, bylaws or operating agreements and other core documents. These are not just formalities. They are what keep the law on your side when your business faces a lawsuit.
Personal Liability Through Lack of Formalities
Let’s talk about company legal documents. These actually relate to a similar topic that we were just discussing, and that is personal liability. The law has said
that, “There are rare occasions if you don’t follow the formalities of treating a company separate from your own affairs that you can be liable.” It is called piercing the corporate veil. In other words, there is usually a veil or protection between you as an owner and your company. And you are not going to be liable for what happens in the company. But if the courts have said, “If you don’t treat the company as separate from your own, then the court isn’t going to either.”
No Separation Means No Protection
In other words, let’s say
you don’t have a separate bank account for the company and you don’t have corporate documents for the company. You are not really treating it as a separate entity.
You are just commingling it with everything else you already do. Well, courts have said, “If somebody sues the
company, they can likely, in that scenario, pierce the corporate veil.” Or, in the LLC context, pierce the LLC veil. Whatever you call it, it is called piercing the veil, essentially. And people who sue your company can get after your own personal assets—your home, your car, your money, things like that—if you don’t have a clear separation. So this section we are talking about now is making sure that you have a clear separation from your business with the documents. What kind of documents?
Articles of Incorporation or Organization
Let’s talk about some of the options, and you can identify with your local attorney which ones apply to you. Articles. The articles of incorporation are the documents that you file with your state when you start a corporation. The articles of organization are the documents you file with your state when you start an LLC. We call them articles, but whether they are an article of incorporation or an article of organization, the shorthand is articles, and basically these are
minimal documents that say, “Here is the company name, address, and a few other key details about the company.” That gets filed with your state.
State Requirements May Vary
Now, some of these other documents get filed with your state, but in other states, like Minnesota, you don’t have to file them with the state. Some states have a high priority around confidentiality and privacy for business owners. And so those state legislatures have decided, “We are not going to require other corporate documents or LLC documents to be filed with the state.” But some states say, “You know what? We value transparency over privacy and confidentiality. We are going to require these other documents to be filed in your state.” So you will need to check with your state on which documents must be filed versus just kept on hand in case they are needed. But the articles are always filed.
Internal Rules and Ownership Structure
So what are some of these documents that get filed in some states but not others? Bylaws, for example. Now normally bylaws are in a corporation, and then LLCs have an equivalent document called an Operating Agreement. Either way, the bylaws and the operating agreement are the rules for inside the company.
So if you have multiple owners, or a board of directors, or in the context of an LLC, we call them a board of governors, if you have officers, any of those sorts of things, voting, and other rules inside the organization as it relates to the owners and the leaders, that would be in the bylaws for a corporation or operating agreement for an LLC.
Required or Retained Depending on State
Some states, you file those with the state government. Other states, you just keep them on hand in case you are ever audited or you need to get a bank loan, in which case the bank would request those from you. These are also documents that govern the rights of multiple owners. So you have multiple shareholders, multiple LLC owners. People who have invested in your company. The bylaws or operating agreement will have all the rules about the relationship between them and any disagreements and such.
Different Names, Similar Purposes
Let’s talk about a shareholder agreement or LLC operating agreement. Now we just talked about an operating agreement is the equivalent of bylaws in an LLC. But sometimes a corporation also has a shareholder agreement. And here is the tricky part. Documents can go by different titles, and generally the law says, “We don’t care what title the document has. We care what is in it. What are the terms that are covered? And does it cover terms that bylaws, or some other legal document would have?”
Additional Agreements Between Owners
So, if you have a shareholder agreement, that might have additional terms that your lawyer, or whoever worked with you, decided don’t need to be in the bylaws, but you want to have some other agreements between shareholders. In an LLC, you can have those same terms thrown right into the operating agreement. Because in an LLC, the idea is more about, “Hey, let’s have all the rules and all the terms and conditions right in one document, the operating agreement.”
Handling Ownership Changes
One part of the shareholder agreement or the operating agreement is sometimes a separate document, but sometimes it is just terms within those documents. We call these buy-sell terms or a buy-sell agreement.
As you might have guessed, this covers how the owners can buy or sell shares in the company or ownership interests in the company. So let’s say you have two owners, 50/50. In that case, what if they can’t get along and one decides, “Hey, I want to be able to sell to a third party.” Can they do that? Well, that would be covered in the buy-sell agreement. We will cover more about what kind of terms and conditions you would put in the buy-sell agreement when we get to exit planning.
Recording Decisions Made by Owners
Whenever the owners of the company have a meeting, you can have meeting minutes. These are just really informal documents that say, “What is the date, who was there, and what was decided?” Generally speaking, governments like to see that the owners of the company are meeting at least annually, sometimes even quarterly.
Single Owner? Write It Down Anyway
Now, if you are the only owner, it is fairly simple. You just meet with yourself, which literally means you are writing up any decisions that are made as the owner of the company. But, governments generally like to see you are at least following some formalities in thinking about your company, reviewing the state of the company, and making any decisions that need to be made for the company.
Templates and Legal Help
You can find free examples of these online. You don’t need to use an attorney unless there is contentious issues between the owners, it is a significant-size company, or if there are a lot of shareholders. Usually then it makes sense to have an attorney run the shareholder meeting or at least be taking notes during the shareholder meeting and produce the minutes afterwards.
Names for Meeting Minutes Vary by Entity Type
In an LLC, we call this member meeting minutes. In a corporation, we call it shareholder meeting minutes. But either way, minutes just means we are tracking the key minutes or the key moments that decisions were made in the company.
Common Legal Documents Every Company Should Have
So those are the important and most common company documents. If you have been in existence for a while or if you work with an attorney, you most likely have those pieces set up.