Simply Registering a Company Name is Insufficient to Avail Business Owners of the Protections of the Corporate Shield

Business Law: It is an oft-asked question: I created a name for our business, isn’t that enough? Simply operating under a business name is generally not enough to protect the individual business owners’ rights, nor to comply with state laws regarding the operation of a business. Even if operating as a sole proprietorship (and not forming an entity with the state), a business still generally still needs to register the name of its business with the State. States generally require all businesses operating within them to register. Registration is essentially a way for the government to keep track of the different businesses and entities providing goods and services within the state and to ensure that taxes are paid.

Moreover, there are important benefits associated with operating a business through a corporate entity. One of the biggest reasons to form a company is to help protect the individual owner’s personal assets. A properly formed corporate entity is an independent, legal entity that is generally considered to be separate and distinct from its individual owners. If properly formed, and if the critical corporate formalities are adhered to, owners can take advantage of the corporate liability shield, often called a “corporate veil,” that generally shields the liabilities and debts of the company from becoming those of the shareholders. While there are exceptions to this protection, it is an important safety measure to seek when operating a business.

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