Protecting Your Corporate Identity

By: Jonathan Bromberg, Esq., Bromberg Rosenthal LLC

There are various forms of business organizations available to those who wish to enter into a business venture and new ones have been created by statutes in recent years. Briefly, the forms include a sole proprietorship, a partnership (including Limited Partnerships and Limited Liability Partnerships), a corporation (including Subchapter S Corporations and regular so-called "C" Corporations), and Limited Liability Companies ("LLCs")

A sole proprietorship is precisely what most people imagine, that is, an individual doing business under his or her own name or an assumed trading name -- e.g. "Cheetum's Computer Store." If Cheetum's owes you money, you can sue Mr. Cheetum. Where two or more persons get together to form a partnership, they can also be trading under an assumed name -- e.g. Dewey, Cheetum & Howe Associates. Any partner can bind any other partner for business debts for the partnership and if you have to sue, you can sue all partners.

A corporation, or Limited Liability Company, on the other hand, is a separate entity. It doesn't matter that you dealt with individuals who you trusted and believed in. If the corporate form was made known to you and agreements were not personally guaranteed, you can only sue the corporation or LLC for trade debts. In fact, one of the major reasons that people choose the corporate form or LLC for a business is to limit their personal liability.

Unfortunately, many businesses go through the planning and expense of creating a valid corporation and do nothing further. Such an approach can be deadly to the Corporate owners and management if liability becomes a problem. The Corporations and Associations Article of the Annotated Code of Maryland sets out many corporate requirements. After filing the Articles of Incorporation with the State Department of Assessments and Taxation (SDAT), an organizational meeting must be held, at which time stock is issued, Directors are elected, and the Directors adopt by-laws and elect officers.

In addition, the law requires that there be annual meetings of the shareholders to elect Directors and conduct any business of the corporation. Special meetings of the shareholders are required for any special matters that require shareholder approval and there are requirements that minutes be kept. These are only a few of the many requirements imposed by law on corporations.

Too many corporations are merely set up and then operate informally. If litigation should arise in the future, it may be possible for a creditor to successfully allege that the corporation was a sham because of the failure to abide by the requirements of the law regarding operation of the corporate entity. The failure to properly file with SDAT on an annual basis will result in the forfeiture of the corporate charter and loss of the benefits of the corporate entity.

When a creditor sues the individuals involved in the corporation it will be too late to correct the neglect of several years and try to convince a court that yours was a proper corporation. In short, it is vital to take the steps necessary to keep up the proper corporate identity. The failure to do so will result in a loss of the benefits of the corporation.

If you have any question about your corporate status, you should contact your attorney. For further information on this article or forms of business organization in general, please contact Jonathan Bromberg, Esq. at Bromberg Rosenthal LLC, (301-251-6200 or toll free 800-836-9994).