• Member Dashboard
  • Courses
  • E-Books
  • Consultations
  • Templates
  • Webinars
  • Ask a Question
  • Forums
  • Member Support
  • Login

Legal to English

Protect Your Business for Growth

  • About
  • Guides to Help You Better Understand Legal
    • Guide to Your Legal Foundation
    • Guide to Intellectual Property
    • Guide to Understanding Contracts
  • Podcast

Legal to English Dictionary: Articles of Incorporation

Legal

“A governing document that sets forth the basic terms of an entity’s existence.”

English

Often shortened to “Articles”, the Articles of Incorporation (for a Corporation) and Articles of Organization (for an LLC) are the founding document for an entity. Articles are typically filed with the Secretary of State (by way of the local Probate Court) where the entity will be formed. Articles set forth basic information about the entity. Common details included in the Articles are:

  • name of the entity
  • how long the will entity last
  • who owns the entity when it is formed
  • purpose
  • registered office and agent
  • management structure of the entity
  • how the governing document will become effective

Articles must be signed by a member or an organizer of the entity. Articles and the Federal Employer Identification Number are typically all that is required by a bank to set up an account.

The filing of the Articles signifies the formation of an entity. It is, however, the governing documents (bylaws or operating agreement) of the entity that matter the most to the owners of the business.

It is important to be very intentional about the items included in the Articles. You want to include what is necessary and prudent for your circumstances, but be careful that you do not restrict yourself unnecessarily by creating a more complex way to adjust how things are done in your entity by placing requirements in the Articles that do not need to be included. Amending the Articles requires filing with the Secretary of State (which will include more filing fees).

A common way to make sure any necessary amendments may be made without amending the Articles is to reference the governing document and state that anything else to do with the company may be outlined in the governing document as long as it does not conflict with the Articles or applicable law. That way, the business will be controlled by the governing document and there will not be as much need to amend the Articles to make changes in the company. This helps avoid unnecessary complexity and filing fees for what would otherwise be simple adjustments to the business.

Remember to keep your Articles as basic as possible while covering all of the required elements.

Limited Liability – How the Wealthy Stay That Way

Today’s episode is about “Limited Liability”. If you have ever taken a business class or read about starting your own business, you have heard or read this term. In this episode we translate what that actually means for you!

Limited Liability Defined

Limited Liability is legally defined as: “liability of a company’s owners for nothing more than the capital they have invested in the business.”

Discussion Topics

Limited Liability is discussed so much in the startup world because it is one of the most important factors you should consider when choosing an entity for your company. A business entity that offers limited liability, limits the liability of business owners to their investment in the company. That means, if you start a business that offers limited liability, creditors cannot go after the personal assets of the owner (e.g. a savings account, car, or house) to collect on any money owed by the business. This is true of loans, accounts of the business, and lawsuits. If the owners’ liability is limited by the entity selected at the beginning, creditors can only collect money or assets inside the business.

In today’s episode, we talk about:

  • Protecting your personal assets from your business debts
  • Protecting your house from your children’s business endeavors
  • A few causes of lawsuits in your business

If you have ever wondered what a legal hypothetical looks like, you should listen to find out how you might get sued in your business. Sometimes it is more bizarre than you might think!

Also, I give some suggestions on how to protect your business even if the thought of calling a lawyer is more than you can handle.

Read More

We have discussed this topic in more detail in other places. If you want to know more about limited liability, check out these articles:

  • Limited Liability and How it Affects You
  • Legal to English Dictionary: Limited Liability
  • Legal to English Dictionary: Corporate Veil
  • A Few Thoughts on Entity Selection

Legal to English Dictionary: Limited Liability

Legal

“Limited Liability” is defined as “liability of a company’s owners for nothing more than the capital they have invested in the business.”

English

Limited liability is how you protect your personal possessions from being used to pay for any debts, judgments, or other financial obligations created by your entity. Limited Liability is discussed so much in the startup world because it is one of the most important factors you should consider when choosing an entity (such as a Limited Liability Company or Corporation). A business entity that offers limited liability, limits the liability of business owners to their investment in the company. That means, if you start a business that offers limited liability, creditors cannot go after your personal assets (e.g. a savings account, car, or house) to collect on any money owed by the business. This is true of loans (unless there is a personal guarantee), accounts of the business, and lawsuits. If your liability is limited, creditors can only collect money or assets inside the business.

This matters both in the success and failure of a business. If your business is successful, it can become a target for lawsuits. Many successful businesses have been dismantled by one lawsuit that bleeds the business dry. If the business goes under because of the lawsuit, creditors are out of luck because creditors cannot take your personal assets into account to satisfy any business debt they are seeking to collect. Often, a business can run out of money during a lawsuit before any judgment happens because of the cost of litigation (even if there is insurance to cover some of the burden). That means if your business struggles for a time after a lawsuit that cost more money than you anticipated, the creditors cannot look to your personal assets (or other sources of income) to satisfy the judgment they won. Your liability for the judgment of the lawsuit is limited to the entity. That means, a struggling business does not necessarily create a struggling owner. Your business may have a difficult time satisfying some of its debts, but you do not experience the same struggle personally because you properly limited your liability in each of your business ventures.

The protection of limited liability is also important if a business fails. Dissolution of a failed business is like probate. The assets of the business are divided to pay off any existing creditors (or as much as they can) and the owners continue on with their lives. That means if your business fails and you are forced to shut down your business, the creditors go with the business. You will have to satisfy your creditors before you get any money out of your business, but creditors cannot go after you personally for debts incurred in the business.

The concept of limited liability is how successful people keep their money. It is important that you take the proper steps to limit your liability from the start of any business venture. If you take those steps up front and your business fails, you have lost your investment, but not everything you have.

Limited liability may be even more important for those who are building their first startup. Those who invest their life savings, their blood, sweat, and tears into a startup. This is important because you will earn a living from your business and it is important to keep the money you earn separate from the business, so you do not lose it all in a lawsuit or if your startup does not make it.

Legal to English Dictionary: Entity

Legal

Entity is defined as “an organization that has a legal identity apart from its members.”

English

An entity is what most people think of when they think of a business. Because it has an identity of its own, an entity can do most of the things a person can do. An entity can:

  • make agreements and sign contracts
  • be in partnership with another entity or an individual
  • lend and borrow money
  • own, sell, lease, and mortgage property
  • sue and be sued

In the eyes of the law, an entity is a person.

Forming an entity for your business gives your idea an identity separate from the founders. Because it has its own identity, entities will take on a life of their own and begin to grow. You can nurture and invest in your business, but eventually your business will stand on its own.

It is presumed that a business has an identity separate from its owners. It is important, however, to make sure an entity is completely separated from the owners. To do this, owners must keep their assets separate from the assets of the entity. The entity should have its own bank account. Personal expenses should be paid by the owners themselves and not the entity. Business expenses should be paid by the entity (or the owners should be properly reimbursed). Entities offer many protections to the owners, but an entity must be treated as separate from those members to make sure those protections hold up when they matter most. If the owners fail to treat an entity as having a separate identity, it is possible that the entity may not be treated as separate by courts and creditors.

  • « Previous Page
  • 1
  • …
  • 46
  • 47
  • 48

About Josh

I am a business lawyer who helps small business owners and entrepreneurs develop a clear legal plan to protect their business as it grows. I podcast, blog, and spend my time giving entrepreneurs a clear path to legal protection. Growing your business can only happen if you have a firm foundation.

If you want to know more about how to build a business while laying your legal foundation of protection, you are in the right place. Read More…

Looking for Something?

Free Membership

Are you plagued by legal questions? Do you want to know how to protect your money, but don't want to spend the time (or money) trying to find a lawyer to ask a simple question?

Are you tired of "It Depends"?
 
Learn more about getting clear answers in an "it depends" world. Discover a Better Way to Do Legal.
 
Join Today for Free

Let’s Connect!

  • Facebook
  • Twitter

Legal to English Podcast

Entrepreneur Interviews

8 episodes

Legal to English

52 episodes

Don’t Miss Anything

Free Legal. Right to Your Inbox

Free Legal. No Spam. Unsubscribe Anytime.

Check Out Some Other Articles

Registering Trademarks

The process of registering a trademark seems daunting at first, but once you understand a bit more about it, you can make an informed decision about whether registering a trademark makes sense for your brand. Of course, in the conversation today, we are talking about registering a trademark with the United States Patent and Trademark […]

Intellectual Property Basics

The specific types of intellectual property rights available in the United States are: Trademarks, Copyright, and Patent. I have provided additional information in the Intellectual Property Guide on Legal to English. To get started, let’s establish a definition of Intellectual Property: Intellectual Property is the expression of an idea, not the idea itself. No one […]

Legal to English Dictionary: Duty of Loyalty

When it comes to an entity, the people in charge (officers) owe a duty of loyalty to the company and its owners. Today, we will define the Duty of Loyalty that officers owe to an entity. The duty of loyalty requires an officer to act in good faith in carrying out the duties of the […]

Starting a Contract

The beginning of a contract is something that can make your eyes glaze over. In many contracts you read, you will not even completely know what is going on in the first paragraph. Have you ever read a contract that looks like this at the beginning: LEASE AGREEMENT THIS LEASE AGREEMENT (this “Lease”) made and […]

Avoiding Unintentional Personal Guarantees

Last week we talked about the set-off rights a bank has with deposit accounts. I mentioned that this could have an impact on you personally because of personal guarantee elements that often exist in bank loan documents. A personal guarantee is a guarantee by an individual to satisfy any unpaid debt of another person or […]

  • Fees and Credits
  • Privacy Policy
  • User Agreement
  • FAQs
  • Terms of Use

© 2013-2021, The Outsourced Associate LLC, Some Rights Reserved

Privacy Policy

This website or its third-party tools use cookies which are necessary to its functioning and required to improve your experience. By clicking the consent button, you agree to allow the site to use, collect and/or store cookies.
Please click the consent button to view this website.
I accept
Deny cookies Go Back