Commentary: Maintaining your business entity

John Doe just received his certificate from the Oregon secretary of state. He is the proud owner of a new Oregon business entity.

Some diligence is required to maintain a valid Oregon corporation, limited liability company or other business entity, but the consequences of neglecting necessary maintenance can be devastative. Team up with a good attorney and accountant, follow their counsel, and become confident that the business entity will survive for as long as needed.* Ensure that the business entity has enough capital to carry on the business for which it was formed. Undercapitalization is a factor considered by courts in alter-ego cases.* NEVER commingle or mix personal money with a business entity's money. The business entity should have its own bank accounts for its own transactions.Dustin Moyes is an attorney in Sussman Shank LLP's business group. Contact him at 503-227-1111 or dmoyes@sussmanshank.com.Sadly, this scenario could be a potential reality for more Oregon business owners than people may realize. Too often, business owners who have formed business entities become lax in their observance of corporate formalities.He places the certificate on his desk, soon to be completely hidden from view as he gets to the business of being in business. He fails to hold company meetings, uses his own bank account for entity matters and even ignores the renewal notice from the secretary of state.Following are some key guidelines to keep a business entity doing business and increase protection from personal liability. Please note that these guidelines are not comprehensive and an attorney should be consulted to provide complete guidance.* For all entity transactions (i.e. leases, sales, purchases), the entity's name must be listed as the transacting party on any documentation. The owner, or a duly appointed representative, will have to sign any agreements, but only in a representative capacity.* All business assets, including real estate and vehicles, should be held in the name of the business entity and, where appropriate, the entity's name must appear on any certificates of title or deeds.The bottom line is this: Don't lose out on the benefits of a business entity by not taking time to maintain it.One day, both John and his entity are sued and a judgment entered against him personally for something that happened in the course of his entity's operations. How can this be? Isn't a business entity supposed to offer protection from personal liability for entity matters?* Keep current any registered agent and other corporate information with the Oregon secretary of state. A corporation could miss important notices if addresses are not up to date.* As necessary, and in some cases required, the business entity should hold annual and special meetings evidenced by written minutes of actions taken.The most terrifying result can be an "alter-ego" or "piercing the corporate veil" action wherein the owners of a business entity may be held personally liable for the bad or negligent actions of the entity. Formality failure may also lead to an entity being denied for needed operational financing or a missed opportunity to sell the business because the buyer was worried the true health of the entity was not as advertised.Happily, it is not difficult (though perhaps boring and tedious) to care for and maintain a business entity. Necessary corporate formalities are found in the Oregon Revised Statutes governing each of the Oregon business entities, but common sense will also be helpful.* Do not "milk" money away from an entity via excessive dividends or distributions. If the business entity cannot make its regular payment obligations in the ordinary course of its business following a dividend to the owners, the dividend should be reduced or avoided.

Dustin Moyes is an attorney in Sussman Shank LLP's business group. Contact him at 503-227-1111 or dmoyes@sussmanshank.com.