Myth: A business incorporated provides personal liability protection.
Fact: If a corporation is not maintained in the corporate formalities or fraud, personal liability can be lost.
Myth: Corporations are all taxed alike.
Fact: No, there is a difference depending on what kind of corporation: C-corp, S-corp, LLC.
Myth: A handshake deal is binding under law.
Fact: Verbal agreements can be enforceable sometimes but are tough to enforce without writing.
Myth: Corporate governance is irrelevant for small businesses.
Read Also:
- https://swiftlawadvisor.com/20-critical-corporate-law-policies-for-business-owners/
- https://swiftlawadvisor.com/25-legal-challenges-that-corporations-face-today/
- https://swiftlawadvisor.com/40-corporate-law-tips-for-startup-entrepreneurs/
Fact: All businesses should set up governance policies to avoid legal disputes and maintain compliance.
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Myth: The trademark registration secures your brand throughout the world.
Fact: The trademark is a country-by-country protection that must be separately filed in every nation.
Myth: Shareholders own the corporation.
Fact: Shareholders hold shares of the corporation but don’t have the ownership rights to its assets.
Myth: Board members are not personally liable.
Fact: Directors can be held personally liable for breaches of fiduciary duties or illegal acts.
Myth: Corporations are optional in the case of bylaws.
Fact: Bylaws play a very significant role in establishing internal governance and resolving disputes.
Myth: Corporations exempt an owner from all taxes.
Fact: Owners will still have personal taxes on income or dividends.
Myth: Corporations cannot be sued over the actions of employees.
Fact: Employers can be vicariously liable for the acts of employees in certain circumstances.
Myth: All corporate disputes must go to court.
Fact: Many disputes are resolved through arbitration or mediation.
Myth: Incorporating in a “business-friendly” state always saves money.
Fact: If your business operates in another state, you may still need to register and pay fees there.
Myth: A single-person corporation is treated differently under the law.
Fact: Single-person corporations are held to the same standards as larger corporations.
Myth: Corporate minutes are unnecessary for small businesses.
Fact: Corporate minutes must be kept to ensure that liability protection is maintained.
Myth: Independent contractors can’t sue for employee rights.
Fact: Misclassification of contractors results in lawsuits over employee benefits.
Myth: Once incorporated, the company no longer has to worry about compliance.
Fact: Filings, taxes, and other compliance measures must still be made regularly.
Myth: Only large corporations need a lawyer.
Fact: Every business needs a lawyer to advise on risks.
Myth: Non-compete clauses are enforceable anywhere.
Fact: Enforceability varies widely by jurisdiction and must meet specific legal criteria.
Myth: You don’t need insurance if you incorporate.
Fact: Incorporation does not protect against all risks; insurance is still essential.
Myth: Investors automatically gain control of the company.
Fact: Control depends on the terms of the investment and shareholder agreements.
Myth: You can freely mix personal and corporate funds.
Fact: Commingling funds can pierce the corporate veil and expose individuals to personal liability.
Myth: Corporations do not have to concern themselves with state laws.
Fact: Corporations must adhere to laws in each state where the corporation operates.
Myth: The directors can vote as they see fit without accountability.
Fact: The directors have a fiduciary duty to act in the best interest of the corporation.
Myth: It is uncommon for corporations to file lawsuits.
Fact: Corporations face frequent legal challenges, ranging from contract disputes to employment claims.
Myth: Hiring employees without contracts avoids legal complications.
Fact: Lack of contracts can lead to disputes over terms of employment.
Myth: Business names are automatically protected after incorporation.
Fact: Business names must be registered as trademarks for comprehensive protection.
Myth: Incorporating prevents personal lawsuits unrelated to the business.
Fact: Incorporation only protects against liabilities arising from business operations.
Myth : A corporation will never need to revise its charter.
Fact: Ownership, management, or law changes commonly necessitate revisions to corporate documents.
Myth : An attorney is only needed when a lawsuit is filed.
Fact: Pre-crisis preventative legal advice is often cheaper than post-crisis issue prevention and resolution.
Myth : Corporate compliance only needs to be done once.
Fact: Compliance needs attention on an ongoing basis to continually maintain legal protections and avoid penalties.
