One of the advantages of becoming a corporation or a limited liability company is limited liability for business owners. One way around this for creditors is to bring an action to pierce the corporate veil.
This legal doctrine provides that if the corporation or limited liability company is merely an alter ego of the business owners and has no independent significance, then creditors may pierce the corporate veil and hold business owners personally liable for corporate debt.
The best Way for business owners to avoid this is to observe corporate formalities in the operation of the corporation or limited liability company. This means that the business should maintain a separate checking account and financial records. The corporate name should be on the letterhead, business cards, and other business documents. The shareholders or members should hold regular board meetings and minutes should be kept which reflect the actions taken by directors.
A11 signatures on corporate documents should be clearly identified as parties signing in their corporate capacity, such as president or secretary, rather than just a plain signature which could mean the party was signing in his/her individual capacity.