Paperwork

[alpha12]

I don't see many people speaking on the paperwork segment of it all. You know bylaws meeting minutes public filings things of that nature. I would

like to ask, let's say I have an account that Is not PG'D, and it defaults, the creditor seeks to obtain judgment, can they "pierce the corporate veil"

 

If my corporate filings are not in order? Perhaps make me personally responsible and crush my personal credit as a result?

 

How about meeting minutes for Everything the Corp does? While I know this is important for asset protection, what about it's relation to business credit?

 

Uniform Commercial Code...does anyone have any experience with it? I would like to hear from you!

 

Is There a better entity for credit? S corp, C corp, LLC? Are those with LLC's lazy???

 

Knowledge has always been and will continue to be Power Let's keep OUR knowledge Strong

[socialbutterfly]

Im interested in knowing this too. The 1st time I heard of UCC was during the chat the other night. I'm planning on purchasing gboogies package. Im guessing there is some info on that in there

[milesb]

Yeah he has a whole webinar on that in the members area. Thats one of the tips that helped me get started faster.

[milesb]

If your paper work is not in order any lawyer will break your corporate shield. Things like keeping good books. Business monies seperate from corporate. Simple stuff. Like not staying in compliance with the secratary of state. Annual filings off corporate officers is a big one people mess up on.

[alpha12]

If your paper work is not in order any lawyer will break your corporate shield. Things like keeping good books. Business monies seperate from corporate. Simple stuff. Like not staying in compliance with the secratary of state. Annual filings off corporate officers is a big one people mess up on.

 

 

Thanks for your advice, seems that a lot of board members don't have as much interest in this as the other threads, hopefully this topic will spark more interest, as i'm looking for more information into these areas.

[BRBiz]

Almost 80% of businesses dont have all the company files in order and yes it leaves you wide open for you to take personal responsibilty for any out standing debt.

And yes it's not talked about much here when maybe it should be but on the other hand unless your defaulting on large loans the chances of a creditor going after you that way is very unlikely. It would cost them more money then its worth. If you have large loans in the tens of thousands there is a good chance it was PG'd any way.

 

In terms is entity's you may have a better protection then a LLC but it really should be the same difference. If your the sole owner of a corp or LLC you are more likely to have your corporate veil pierced if every little thing isn't done correctly. There have been some cases where single member LLC's have been held responsible for there business debt. It is very un common but can happen. One thing that makes a big difference is how much money your business brings in. If your grossing only $20,000 a year but your spending $15000 on items then you are more likely using those items for personal useor if your buying items not normally used in your line of business.

[milesb]

We should start a thread on that...this will become more important than anything as things get tighter...

 

Almost 80% of businesses dont have all the company files in order and yes it leaves you wide open for you to take personal responsibilty for any out standing debt.

And yes it's not talked about much here when maybe it should be but on the other hand unless your defaulting on large loans the chances of a creditor going after you that way is very unlikely. It would cost them more money then its worth. If you have large loans in the tens of thousands there is a good chance it was PG'd any way.

 

In terms is entity's you may have a better protection then a LLC but it really should be the same difference. If your the sole owner of a corp or LLC you are more likely to have your corporate veil pierced if every little thing isn't done correctly. There have been some cases where single member LLC's have been held responsible for there business debt. It is very un common but can happen. One thing that makes a big difference is how much money your business brings in. If your grossing only $20,000 a year but your spending $15000 on items then you are more likely using those items for personal useor if your buying items not normally used in your line of business.

[Questor]

I would posit that the reasons behind the lack of discussion regarding these issues are many, and that included are that in businesses large enough to have real officers officers, they do not deal with issues so mundane, and have legal departments to ensure compliance. Additionally, many of those who are knowledgeable in these areas are not going to simply give the information away for free, having been educated that it is valuable. MBA's are not free.

 

Those said, another big reason there is little discussion on these issues is that most people asking these questions are planning to default, assuming that their business will fail, trying to commit fraud, or otherwise not convinced of themselves and their business ideas enough to be able to pull it off and want some sort of 'safety net'. These individuals rarely make it in the business world, and are among the myriad of reasons that easy to get business credit is drying up.

 

This is a very complex issue and cannot be disseminated easily, for understanding relies upon quite a bit of prior knowledge and experience.

 

First, a basic understanding that when it does come to litigation, it is ultimately the judge that makes the decision to 'pierce the corporate veil' or not. While instigated by the council of the opposition, the judiciary makes the call based on the evidence at hand...

 

Knowing that the judge ultimately makes the call, we next move on to whether the issue is contract or tort. For most legitimate businesses, the chosen business structure was not opted for so that when said business failed financially, the owners would not be responsible; the structure is generally chosen to protect from liability of a different sort, tort.

 

Try this one on, you and your 3 partners are dentists, and share a facility and have a partnership agreement, said individual trips on your lobby chair, breaking her leg, turns out to be a championship figure-skater, and can now no longer perform, she is insured and gets a payout, but the rights are subrogated to the insurance company, who comes after your practice, in this situation, you do not want to be personally liable, and the judge would likely not pierce the veil, even if some of your paperwork was missing, not timely filed, etc... because it would be obviously presentable by your attorney that you were operating as a group, etc...

 

Now, take the situation of most of the people asking questions here, single member LLC's, who generally have ZERO real employees, and often no real physical business location, and are looking to get no PG biz credit, basically the model for default. Said individual can file every bit of paperwork, crossed and dotted every t and i, and have meetings and minutes for talking to themselves, but when it comes down to it, in front of a judge, with intelligent opposition, dealing with contract law, regarding credit garnered for the business, pierced, like that.

 

Additionally, and read this, all ye seeking false business credit, just because you don't PG does NOT mean that you will not be put in collections, get harassing phone calls at home and at work, actions filed for your own acts, negligence , or omissions. As a member of the LLC (single member LLC's have a 'managing member') you will be dually responsible as both a 'manager' and a 'member'. In addition, any creditor can always (and WILL) come after you personally with an action as an individual, in which it will be up to YOUR legal muscle to prove that you (as a single member company, where YOU personally were the one that had to fill out the credit application and then use the credit) somehow?! aren't liable... Good luck... Even if you have all your 'ducks in a row'.

 

These things usually end up disastrously in the courtroom, comical at times. To those starting a business: If you do not believe in yourself and your business enough to know that you're going to be able to repay your direct creditors then be willing to risk Ch7or11 or just don't do it!

[alpha12]

I would posit that the reasons behind the lack of discussion regarding these issues are many, and that included are that in businesses large enough to have real officers officers, they do not deal with issues so mundane, and have legal departments to ensure compliance. Additionally, many of those who are knowledgeable in these areas are not going to simply give the information away for free, having been educated that it is valuable. MBA's are not free.

 

Those said, another big reason there is little discussion on these issues is that most people asking these questions are planning to default, assuming that their business will fail, trying to commit fraud, or otherwise not convinced of themselves and their business ideas enough to be able to pull it off and want some sort of 'safety net'. These individuals rarely make it in the business world, and are among the myriad of reasons that easy to get business credit is drying up.

 

This is a very complex issue and cannot be disseminated easily, for understanding relies upon quite a bit of prior knowledge and experience.

 

First, a basic understanding that when it does come to litigation, it is ultimately the judge that makes the decision to 'pierce the corporate veil' or not. While instigated by the council of the opposition, the judiciary makes the call based on the evidence at hand...

 

Knowing that the judge ultimately makes the call, we next move on to whether the issue is contract or tort. For most legitimate businesses, the chosen business structure was not opted for so that when said business failed financially, the owners would not be responsible; the structure is generally chosen to protect from liability of a different sort, tort.

 

Try this one on, you and your 3 partners are dentists, and share a facility and have a partnership agreement, said individual trips on your lobby chair, breaking her leg, turns out to be a championship figure-skater, and can now no longer perform, she is insured and gets a payout, but the rights are subrogated to the insurance company, who comes after your practice, in this situation, you do not want to be personally liable, and the judge would likely not pierce the veil, even if some of your paperwork was missing, not timely filed, etc... because it would be obviously presentable by your attorney that you were operating as a group, etc...

 

Now, take the situation of most of the people asking questions here, single member LLC's, who generally have ZERO real employees, and often no real physical business location, and are looking to get no PG biz credit, basically the model for default. Said individual can file every bit of paperwork, crossed and dotted every t and i, and have meetings and minutes for talking to themselves, but when it comes down to it, in front of a judge, with intelligent opposition, dealing with contract law, regarding credit garnered for the business, pierced, like that.

 

Additionally, and read this, all ye seeking false business credit, just because you don't PG does NOT mean that you will not be put in collections, get harassing phone calls at home and at work, actions filed for your own acts, negligence , or omissions. As a member of the LLC (single member LLC's have a 'managing member') you will be dually responsible as both a 'manager' and a 'member'. In addition, any creditor can always (and WILL) come after you personally with an action as an individual, in which it will be up to YOUR legal muscle to prove that you (as a single member company, where YOU personally were the one that had to fill out the credit application and then use the credit) somehow?! aren't liable... Good luck... Even if you have all your 'ducks in a row'.

 

These things usually end up disastrously in the courtroom, comical at times. To those starting a business: If you do not believe in yourself and your business enough to know that you're going to be able to repay your direct creditors then be willing to risk Ch7or11 or just don't do it!

 

 

Good post...thanks for your insight

[alpha12]

I noticed a few things after rereading your post, I understand if you don't clarify as you have already stated, your not going to make certain valuable information public.. I personally and emphasize personally, feel information and education should be free. Even though it's not.

 

You mentioned single member LLC's.... in the beginning of this thread the question was proposed, what's the Best entity for credit, if there is one,

and also the question of Single member LLC's are they lazy? I believe you did outline (very well i might add) how even if all the paperwork for the "LLC" is on point, the veil will be/can be pierced as it has only one owner/member, that has solely acted on behalf of the Entity and

Knowingly entered into contracts for debt instruments. Cool. The question would be then, how would/if it would change the scenario if using a different entity?

 

Also I agree with you false business credit plus a terrible economic climate has hurt all of us with real business credit. These actual questions (at least by myself) are being proposed by a sense of being cautious due to things getting so tight. There are many of us, who are looking for new ways

or better ways to do things "credit wise" not to get credit and default. That in my eyes is a scammer

 

In short I thank you for you post as it was very educational and something to consider. Do you know of any Methods in this area that are "helpful"

to those of us as far as furthering our business credit endeavors? I would love to hear from you,

[Questor]

I feel the same way and I don't mind sharing at all, I was mostly commenting on why there would be a distinct lack of response and discussion on this and related topics.

 

The choice of entity is not so important as the reality of the reasons and motivation behind the garnering and use of the debt instrument / credit. The judge is a real person and I cannot stress enough how piercing is at the discretion of the judiciary. There exist a large number of standards or tests for the court to consider in their deliberation as to whether or not to pierce.

 

I could discuss the many reasons, but that's already been beaten to death, so I have shamelessly stolen from the wikipedia:

(http://en.wikipedia.org/wiki/Piercing_the_corporate_veil)

 

 

Factors for courts to consider

• Absence or inaccuracy of corporate records;
  
• Concealment or misrepresentation of members;
  
• Failure to maintain arm's length relationships with related entities;
  
• Failure to observe corporate formalities in terms of behavior and documentation;
  
• Failure to pay dividend;
  
• Intermingling of assets of the corporation and of the shareholder;
  
• Manipulation of assets or liabilities to concentrate the assets or liabilities;
  
• Non-functioning corporate officers and/or directors;
  
• Other factors the court finds relevant;
  
• Significant undercapitalization of the business entity (capitalization requirements vary based on industry, location, and specific company circumstances);
  
• Siphoning of corporate funds by the dominant shareholder(s);
  
• Treatment by an individual of the assets of corporation as his/her own;
  
• Was the corporation being used as a "façade" for dominant shareholder(s) personal dealings; alter ego theory
  

It's very difficult for most folks to not screw up on several of these, and it really only takes one or two, depending on WHY you are in front of the judiciary, for them to state liability. Again, the concept of limited liability was originally intended to protect the individuals who individually or jointly operate a business from being liable for wrongdoings of that business that would result in torts. Limited Liability was not intended for the protection of businesses who secure capital and then default under contract law, though some protections have been afforded in this regard.

 

 

A key point to note is that in addition to the above, most states have laws against an insolvent LLC making a disbursement to a member, and if that is done, as is most often the case in a failing business, the single member will often take money out of the company in an improper manner, thus sealing their fate if any action ever comes before the courts. This is especially harsh in states where the law is written that insolvency can also mean that the liabilities of the LLC exceed the FMV of its assets. Normal business operation can result in this state! And ANY distribution taken not in the course of normal salary could be considered.

 

All of the above and the vast number of people who now register businesses as false fronts, have dried up the landscape of many forms of reachable, usable, credit for small businesses. If you are a bona fide business, you can often get credit or terms with your suppliers or providers after establishing a relationship, allowing you to extend your buying power, etc... THESE are the REAL ways a business builds itself and it's creditworthiness, not by buying office supplies that one doesn't need in order to get 'another NET30 account 'reporting''...

 

A significant number of people post here looking for No-PG V/MC, etc. Which virtually do not exist for small business anymore, thirst for these instruments is a classic sign of individuals who screwed up in the personal credit world and are now leeching of the FORMER ease of getting credit in the biz world.

 

Edited September 12, 2010 by Questor

[alpha12]

I feel the same way and I don't mind sharing at all, I was mostly commenting on why there would be a distinct lack of response and discussion on this and related topics.

 

The choice of entity is not so important as the reality of the reasons and motivation behind the garnering and use of the debt instrument / credit. The judge is a real person and I cannot stress enough how piercing is at the discretion of the judiciary. There exist a large number of standards or tests for the court to consider in their deliberation as to whether or not to pierce.

 

I could discuss the many reasons, but that's already been beaten to death, so I have shamelessly stolen from the wikipedia:

(http://en.wikipedia.org/wiki/Piercing_the_corporate_veil)

 

 

Factors for courts to consider

• Absence or inaccuracy of corporate records;
  
• Concealment or misrepresentation of members;
  
• Failure to maintain arm's length relationships with related entities;
  
• Failure to observe corporate formalities in terms of behavior and documentation;
  
• Failure to pay dividend;
  
• Intermingling of assets of the corporation and of the shareholder;
  
• Manipulation of assets or liabilities to concentrate the assets or liabilities;
  
• Non-functioning corporate officers and/or directors;
  
• Other factors the court finds relevant;
  
• Significant undercapitalization of the business entity (capitalization requirements vary based on industry, location, and specific company circumstances);
  
• Siphoning of corporate funds by the dominant shareholder(s);
  
• Treatment by an individual of the assets of corporation as his/her own;
  
• Was the corporation being used as a "façade" for dominant shareholder(s) personal dealings; alter ego theory
  

It's very difficult for most folks to not screw up on several of these, and it really only takes one or two, depending on WHY you are in front of the judiciary, for them to state liability. Again, the concept of limited liability was originally intended to protect the individuals who individually or jointly operate a business from being liable for wrongdoings of that business that would result in torts. Limited Liability was not intended for the protection of businesses who secure capital and then default under contract law, though some protections have been afforded in this regard.

 

 

A key point to note is that in addition to the above, most states have laws against an insolvent LLC making a disbursement to a member, and if that is done, as is most often the case in a failing business, the single member will often take money out of the company in an improper manner, thus sealing their fate if any action ever comes before the courts. This is especially harsh in states where the law is written that insolvency can also mean that the liabilities of the LLC exceed the FMV of its assets. Normal business operation can result in this state! And ANY distribution taken not in the course of normal salary could be considered.

 

All of the above and the vast number of people who now register businesses as false fronts, have dried up the landscape of many forms of reachable, usable, credit for small businesses. If you are a bona fide business, you can often get credit or terms with your suppliers or providers after establishing a relationship, allowing you to extend your buying power, etc... THESE are the REAL ways a business builds itself and it's creditworthiness, not by buying office supplies that one doesn't need in order to get 'another NET30 account 'reporting''...

 

A significant number of people post here looking for No-PG V/MC, etc. Which virtually do not exist for small business anymore, thirst for these instruments is a classic sign of individuals who screwed up in the personal credit world and are now leeching of the FORMER ease of getting credit in the biz world.

 

 

 

 

WOW!! EXCELLENT POST!!! That's what CB is about, people like you, are the reason I stay on the boards! Seriously this is one of the best posts' I Have ever read. I actually have no response except Thank You, and you should be posting a LOT MORE!

 

 

That is the real way for credit, everybody chasing the next net30, it's needed, but not the end all be all. I agree 110%

 

 

P.S. I bet you're a corporate attorney! lol, and that is great if you are friend, thanks for taking the time to educate me and others. Valuable and Appreciated

Edited September 13, 2010 by alpha12

[360technical]

Yeah that smells of Legalese to me, haha..Great post my friend!