Separate Your Business From Yourself, or a Court Might Not

When you form a corporation or LLC, you’re not just picking a tax box; you’re building a wall between your business and your personal life. That wall protects your savings, your home, and your future, but it only holds if you treat the company like a company, not a convenient alias. Too many owners assume the filing alone does the job; in court, what proves separateness is the trail of behavior: clean bank accounts, documented decisions, and actions that match your own bylaws or operating agreement. “Corporate formalities” are simply the small, repeatable habits that create that trail. If you’re a solo founder or a small team, this isn’t busywork; it’s what keeps a dispute a business problem instead of a personal crisis, and it’s manageable with a simple monthly rhythm.

What Are “Corporate Formalities,” Anyway?

Corporate formalities are the habits and records that show your company is real and separate. The specifics differ by the type of entity you form, but regardless of your entity type, you need to make sure you are observing what we refer to as corporate formalities.

For Corporations:

Hold and document shareholder and board meetings (even if you’re the only one wearing all the hats).
Follow the bylaws; issue stock and keep a stock ledger.
Record major decisions with resolutions.
Keep separate books, bank accounts, and contracts.
File required annual reports and keep your registered agent/current info up to date.

For LLCs:

Maintain a signed operating agreement (even single‑member).
Document major decisions via written consents or minutes (no formal “meeting” is usually required).
Keep separate books, bank accounts, and contracts.
Maintain a clear capital account/ownership record; issue membership interests as documented.
File required annual reports and keep entity info current.

Think of these like maintenance checks on a car: boring until they save you from a blowout.

Why It Matters More Than You Think

Failing to respect separateness can lead to “piercing the corporate veil.” That’s when a court treats the entity as your alter ego and reaches your personal assets to satisfy business debts.

It’s rarely about one stray missed document. Courts look at patterns. The more your behavior blurs the lines, the weaker your wall.

Some examples of the things that courts will look at and consider when deciding whether your entity is your alter ego include:

Commingling: Paying personal expenses from the business account (or vice versa).
Undercapitalization: Never putting in enough money to cover foreseeable obligations.
Disregard of governing documents: Ignoring bylaws/operating agreement; no records of major decisions.
Failure to observe required formalities (especially for corporations).
Alter‑ego behavior or fraud: Treating the entity as a personal piggy bank or using it to dodge obligations.

This isn't an exhaustive list of all the things they will look at, but are just some examples. Usually, if you ask yourself, "Does it feel like I'm really keeping things separate or not?", you'll get to the heart of whether or not you are truly maintaining these corporate formalities.

In reality, most people end up with some bleed-over from their corporate life into their personal life. As that grows, however, is when you can run into significant issues because you failed to separate the two parts of your life.

Real Risk, Real Consequences

Let's look at an example that you could run into:

You're a single-member LLC, and you work as a consultant. You set up your business, but you don't have an operating agreement. You pay your personal credit card using the LLC bank account to simplify things, and you've never documented distributions or major decisions.

A dispute with a customer turns into a lawsuit. That lawyer hired by the other side looks at the commingling of funds, the fact that you don't have governing documents, and that there's no evidence to show that your LLC is not just you by another name.

Now that opposing attorney is starting to get some traction with the court, they're building a case step-by-step, brick-by-brick, on why your LLC, that you thought was there to protect you, should be treated as nothing more than your attempt to evade your obligations.

Unfortunately, this kind of situation tends to be the rule, not the exception.

But It Doesn’t Have to Be Complicated

Maintaining corporate formalities doesn't have to be a complicated endeavor. The good news is it's manageable with some guide rails and a simple cadence. Once you get used to maintaining these formalities, it's easy to make sure we check the boxes and keep the formalities in place. When I'm advising clients, we can usually break down these tasks into two separate buckets:

A simple 15-minute routine that you can take a look at once a month
Your annual tasks. Things that we need to make sure we're doing once a year to maintain our corporate formalities

Your 15‑minute monthly routine

Reconcile accounts; confirm no personal charges in the business ledger.
If a personal expense slipped in, reimburse and document the correction.
File written consents for any major decisions you made that month (hires, contracts, loans, distributions).
Make sure your registered agent and contact info are current in your records.
Glance at your operating agreement/bylaws when you do something significant, operate per your own rules.

Your annual rhythm

File your state annual report on time.
For corporations: hold/document the annual shareholder and board meetings; update the stock ledger.
For LLCs: review/update the operating agreement; issue/update ownership schedules.
Confirm adequate capitalization for the year’s plans; document any capital contributions or distributions.
Refresh your minute book/entity folder with the year’s resolutions and key contracts.

Your Legal Foundation Is a Strategic Asset

You may never have thought of it this way, but your legal foundation truly is a strategic asset for your business. These corporate formalities are not just red tape; they are how you prove to anybody who questions that you run a real business. That proof builds over time, creates credibility with banks, investors, partners, and preserves your liability shield when you need it most.

Corporate formalities aren't normally going to be top of your list of things that you're paying attention to in your business, but you need to make sure you are paying attention to them.

Do I Need a Business Attorney?

If you need help with these steps, or have some other business legal issues you are confronting, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you and your business.