A reader recently asked me this: “Can I PERSONALLY receive payments for services rendered through my S-corporation without jeopardizing my “corporate veil” or “corporate shield?”
The corporate veil insults owners and officers of a limited liability entity personally from liability risks of a business.
The answer to the reader’s question is yes, as long as this reader follows the corporate formalities I teach my clients and as long as he doesn’t commit one of the “7 Deadly Corporate Sins.” I listed the seven or eight (depending on how you count them) things you should avoid in order to buttress your corporate structure and not have your “corporate veil” pierced. Indiana corporations and Indiana LLC’s are governed by these rules, and I have generally described Indiana case law and the Indiana Code in these blogs. I give more guidance on this important topic in these other blogs:
As to the question asked by my reader, he is going to receive checks in his personal name for work done through his S-corporation. The contract at issue is in writing and is between his S-corporation and another company. That’s a very good thing for my client, as it helps to distinguish him from the S-corporation he owns. For reasons not important here, the payments will be mailed as checks to my reader but made payable to him personally. I advised him to deposit the check in his S-corporation’s checking account and to treat the payments as if the payment had gone straight to the S-corporation and not to him personally.
By taking these steps, he will not violate any of the “7 Deadly Corporate Sins” and will avoid the “co-mingling” issue. The payments rightfully belong to his S-corporation, not him personally. So, he is merely depositing payments in the bank account of the rightful owner- his S-corporation. He is actually doing something positive to separate his personal affairs from his business affairs, which buttresses his corporate protection and limited liability. A court should look favorably on what he is doing, if this ever became an issue.
By the way, there is no significance to the fact that this reader owns an S-corporation, as opposed to a C-corporation. I did mention the “S” election status of this particular corporation to make the point the even S-corporations are obligated to follow the rules I described in this and the related blogs. The tax status of an entity should not impact the manner in which the corporate veil is preserved and protected. The same is true for LLC’s, although the formalities for LLC’s are different than they are for corporations. Otherwise, the same rules apply to LLC’s and corporations.
A good small business attorney will help you structure your business affairs in a way that limits your personal risks and protects your personal assets. If you need an Indiana attorney, make sure you hire a lawyer who understands Indiana business law.
Matthew A. Griffith is an attorney, business performance coach, mentor and entrepreneur. He coaches, advises and guides business owners, entrepreneurs, inventors, property managers, investors and real estate professionals. Matt has nearly two decades of experience helping businesses grow.