Protection from personal liability
By Deborah A. Green, Esq.

I own a small, chiropractic professional corporation. What is the minimum I need to do to protect myself from personal liability?

Much of what you need to do is common sense. Here are some things to keep in mind:

• Never mix corporate and personal funds, assets, or accounts. Do not use corporate funds or assets for personal purposes. Limiting your personal liability and obtaining the tax benefits of doing business as a corporation is available only if you comply with corporate law requirements.

• Conduct business in the corporate name. Avoid any indication that you are dealing in a personal capacity. Use the corporate name on your advertisements, letterheads, cards, and signs. When signing documents, make it clear that you are acting on behalf of the corporation and use your corporate title after your name (e.g., Mary Smith, President).

• Learn and respect the different roles in a corporation. A shareholder owns the corporation. Shareholders do not own the business; the corporation owns the business — all assets and all funds. As a shareholder, you may vote to elect and remove directors, amend the articles of incorporation and bylaws, and approve or disapprove of a few other major actions, such as dissolution, merger, sale of all the corporate assets, the making of certain loans, and the creation of new stock.

Such actions are valid only if authorized by the shareholders acting as shareholders, in a properly held shareholders’ meeting.

Directors manage the corporation. They make all major business decisions, such as the hiring and firing of officers, compensation of employees, payment of dividends to shareholders, contracting with other businesses, loaning or borrowing money, initiation of new ventures and purchase of new equipment. Resolutions reflecting these decisions must be adopted by a majority vote at a directors’ meeting and recorded in the corporate minutes. Only those acts authorized by resolution will be considered acts of the corporation. Therefore, to shield yourself from personal liability, keep minutes and proper resolutions.

Officers are employees of the corporation and conduct the everyday business of the corporation. Your acts are the acts of the corporation so long as you act within the authority given by the articles of incorporation, the bylaws and the resolutions of the board of directors.

Keeping these roles straight is very important in small, closely held corporations where people frequently act in more than one of these capacities. The courts will consider observance of the formalities as important evidence in deciding whether the corporation has been operated as a separate entity. The formalities are often the source of authority for those who act on behalf of the corporation. Officers, directors, and employees who act without authority (that is, without proper approval of the shareholders or the directors that is recorded in the corporate minutes) may be personally liable for their acts.

• Hold proper meetings. Hold corporate meetings and keep appropriate minutes — even if you are the sole shareholder.

Conduct shareholder meetings at least once a year for election of directors, and at other times as the necessity may arise for shareholder approval of specific actions. Avoid technical problems associated with giving proper notice of meetings by routinely obtaining a waiver of notice from all shareholders or directors, as appropriate.

When actual meetings are inconvenient, or when a consensus can be reached informally, substitute unanimous written consent of all shareholders or all directors to serve as the legal equivalent of a meeting. The written consent resolutions, waivers of notice, proofs of notice, and minutes of actual meetings should be kept in the corporate minute book.

Deborah A. Green is a practicing health attorney, licensed in New York and Florida. If you have any questions regarding the issues addressed above or concerning any other legal heathcare issues, please feel free to fax your questions to Deborah A. Green, at The Green Law Firm, P.L., 954-971-3787 or e-mail her at healthattorney@aol.com.

DISCLAIMER: This column is provided for educational purposes only. The information presented is not intended as legal advice with respect to any matter and no attorney-client relationship is established.