In order to avoid day-to-day liability risks when enacting an asset protection plan, a small business owner must pay close attention to recordkeeping and initial capitalization to steer clear of the doctrine of "piercing the veil" of limited liability.

Let's say Smith, Jones, and White are all physicians and operate a medical practice, which is organized as a limited liability company (LLC).

A small business owner acts as an agent or employee for the limited liability company (LLC) or corporation when selling goods or hiring agents or employees for the business. Acting in that capacity generally affords the owner personal liability protection for torts committed in the business.

There are some tort exceptions to limited liability that would negate carefully constructed asset protection plans and expose an owner to unlimited personal liability.

Among the tort exceptions to limited liability for a small business owner is selling or hiring in a personal capacity. Doing this could negate carefully constructed asset protection plans.

In order to avoid the contract exceptions to limited liability, a small business owner needs to take care in the way contracts are executed.

There are some tort exceptions to limited liability that would negate carefully constructed asset protection plans and expose an owner to unlimited personal liability.

In practice, personally guaranteeing the business's contracts will be a contract exception to limited liability that the small business owner will not be able to avoid in some cases.

Every business owner should strive to limit liability for contracts and torts. As with the contract exceptions to limited liability, agency law is the key to understanding the exceptions to limited liability with respect to torts committed in the business.

Inserting the name of the business entity as the party to the contract is necessary to avoid personal liability, but it is not sufficient by itself to avoid one of the contract exceptions to limited liability. The owner must then properly sign the contract as the agent, or representative, of the principal (the entity).

Even though pre-formation contracts can result in one of the contract exceptions to limited liability, not all is lost.

As a rule, in order to avoid one of the contract exceptions to limited liability, the party to a business contract should always be the principal (i.e., the limited liability company (LLC) or corporation). So it is surprising that many business owners form an LLC or corporation, but then sign contracts in their own name.

The issue of authority under contract law is not always clean-cut. In most situations, express or implied authority is granted to an agent of the business. But sometimes apparent authority muddles the picture.

Ideally, the small business owner will sign a contract solely as an agent of his or her limited liability company (LLC) or corporation. If an agent does this properly, only the principal is liable on the contract. The agent will have no liability at all on the contract. Thus, if the owner of a business properly signs a contract as an agent of the LLC or corporation, only the principal (i.e., the LLC or corporation) will be liable on the contract.

If a small business owner hopes to limit liability for contracts and torts, he or she must have a basic understanding of the law of principal and agent, because agency law is one of the keys to understanding the exceptions to limited liability.

Many business owners harbor a misconception concerning pre-formation contracts, which potentially could lead to one of the contract exceptions to limited liability.

To avoid day-to-day liability risks when running a small business, the mere formation of a limited liability company (LLC) or a corporation is not a sufficient asset protection strategy. As discussed in our section titled, "Limit Liability in Your Business Structure," the entity must be structured and funded properly to limit exposure to liability.

In order to limit liability for contracts and torts, a small business owner should have a basic understanding of contract law.

In order to avoid certain fraud restrictions when withdrawing funds from the business, small business owners need to be careful about authorization and documentation for these transfers.

A small business owner should use any or all of a number of withdrawal methods available in order to reduce the amount of vulnerable funds within a business. Obviously, steering clear of the restrictions on these transfers is vital, and one of the best ways is through good recordkeeping.

A small business owner has a number of withdrawal methods available when seeking to minimize the amount of vulnerable assets within the entity by withdrawing funds from the business.

In order to avoid certain fraud restrictions when withdrawing funds from the business, small business owners need to be careful about authorization and documentation for these transfers.

Small business owners have a variety of withdrawal methods available to them when attempting to minimize the amount of vulnerable assets within the business. Taking payments for loans and leases is one possible strategy that can accomplish this goal, subject to certain tax issues.

Small business owners have a variety of withdrawal methods available to them when attempting to minimize the amount of vulnerable assets within the business. Taking payments for loans and leases is one possible strategy that can accomplish this goal, subject to certain tax issues.

A small business owner has a number of withdrawal methods available when seeking to minimize the amount of vulnerable assets within an entity by withdrawing funds from the business.