If a creditor pierces the corporate veil, the creditor can go after the owner's personal assets (home, bank account, investments, and other assets) to satisfy corporate debt, obligations and liabilities.
One of the main advantages of incorporating is that the owners' personal assets are protected from creditors of the corporation. For instance, if a court judgment is entered against your corporation saying that it owes a creditor $100,000, you can't be forced to use personal assets, such as your house, to pay the debt.
Section 351(a) provides that no gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in § 368(c)) of the corporation.
Your structure determines your personal liability
If you're a sole-trader or a small business your personal assets may be at greater risk than if you're structured as a company. “If they're claiming against the company, then it's usually the company's assets that are at risk.
Sole proprietorships and general partnerships do not provide limited liability. Sole proprietorships and general partnerships are two of the easiest businesses to form and maintain, however they are also the riskiest in terms of asset protection. A sole proprietorship is not considered a separate entity from its owner.
When a company enters liquidation, it provides its books and records to the liquidator. The liquidator goes through those records and decides a date where the company first became insolvent. If the records show any debts incurred after that date, the directors can be held personally liable for those debts.
Unlike a sole proprietorship or a partnership, an LLC is an entirely separate legal entity from its owners. For this reason, creditors can generally only go after assets that belong to the business itself, not those assets personally owned by the LLC's executives.
You can transfer ownership of the vehicle from yourself to your company. There are a variety of reasons you may need to transfer personal property to your small business.
Capital contributed.
This represents the dollar value of resources put into the company by the owner. Often, this is cash, but it could also be assets like machinery or accounts receivable. In any case, these are personal assets that are used to fund the business.
By running your business as a corporation instead of a sole proprietorship, you generally protect yourself from personal liability for the business's actions or debts. In essence, the corporate veil ensures that the business and its owner are treated as distinct legal entities.
An S corporation protects the personal assets of its shareholders. Absent an express personal guarantee, a shareholder is not personally responsible for the business debts and liabilities. Creditors cannot pursue the personal assets (house, bank accounts, etc.) of the shareholders to pay business debts.
Although you can choose to run your business as a sole proprietorship, partnership, corporation or limited liability company (LLC), in most cases the LLC will offer the most effective protection for both your personal assets outside the business and your investment in the business itself.
A California corporation can protect (shield) the owners personal assets from the corporate debts, liabilities and obligations. Shielding personal assets from corporate liabilities (Asset Protection) is generally one of the primary purposes of incorporation.
If formed as a corporation: The owners of the corporation are not liable for the losses of the businesses. Creditors generally may only look to the corporation and the business assets for payment.
Unlike an S Corporation or an LLC, it pays taxes at the corporate level. This means it is subject to the disadvantage of double taxation.
If you are transferring personal assets in exchange for a stake in the company, record the asset, purchase price, fair market value, and depreciation in your LLC operating agreement. If the company is buying the assets from you for cash, record the transaction in your accounting records.
To transfer a private vehicle to an LLC, you should follow legal procedures by contacting your state's Department of Motor Vehicles and completing the necessary paperwork, ensuring the vehicle is properly titled and registered under the LLC's name.
Converting Personal Assets to Business Use
Perhaps your only real concern will be confirming whether you'll lose insurance coverage for the converted items under your homeowners policy. If so, you'll want to be sure to have the items covered by your business policy.
As a general rule, if the LLC can't pay its debts, the LLC's creditors can go after the LLC's bank account and other assets. The owners' personal assets, such as cars, homes, and bank accounts, are safe. An LLC owner only risks the amount of money he or she has invested in the business.
LLCs are better at protecting business assets from creditors and legal liability. Trusts can handle many types of assets and are better at avoiding probate and reducing estate taxes. In some cases, both an LLC and a trust may be the best way to manage the estate.
If you're an owner of a corporation or LLC, you are a separate entity from the business, and the business isn't responsible for your personal debts. But while creditors generally can't take your business assets to pay your personal debts, they can take funds your business owes you.
Courts can, in some cases, hold individual owners, members, or shareholders personally liable for business debts and obligations. This is where piercing the corporate veil comes in. Piercing is possible if the owners fail to maintain a separate legal existence between their personal affairs and the company.
The most common offences that company directors are prosecuted for include: Breach of duty. Fraudulent misrepresentation. Fraudulent trading.
Directors and officers can be personally sued by shareholders, partners, board members, creditors, employees, customers, vendors and competitors for a variety of reasons.