While it's true that an LLC or other corporate entity CAN protect you from personal liability, it's only a starting point. To insure that the entity is respected (meaning it's assets alone are solely liable for satisfying any judgment) it's important to do at least the following (not an exclusive list):
1. when you form the company, have a decent amount of capital in the company's bank account (yes a separate account in the company's name);
2. make sure you follow all corporate formalities, including:
(a) regular meetings with minutes
(b) updated books and records containing minutes, authorizations/resolutions for company officers to act on behalf of the company, etc.
3. Try to have more than just yourself as an officer (have more than one officer);
4. Keep separate accounts and don't commingle personal and corporate money;
5. Purchase a reasonable amount of liability insurance;
6. Make all required federal and state filings (including employment development department, etc.)
I always get the feeling that lots of startup entrepreneurs get the impression that just setting up a corporation through an online provider is the end of the process, in reality it's just the beginning. If you don't follow through you might as well save your money and just operate as a sole proprietorship.
Thank you, that's a very detailed list of things to remember and take care of. I've heard of 'piercing the corporate veil' in cases of gross negligence on behalf of the business, so nothing protects a person fully, but it sounds like there are definitely more harmless ways it can happen, too.
I always get the feeling that lots of startup entrepreneurs get the impression that just setting up a corporation through an online provider is the end of the process, in reality it's just the beginning. If you don't follow through you might as well save your money and just operate as a sole proprietorship.