Tip #1 - Separate your business finances from your personal finances
Most companies choose to create a legal entity – whether a limited liability company, corporation, or other – to avoid personal liability to shareholders or members. This way, the personal assets of the company’s owner – including homes, cars, savings, and possessions – are not at risk for actions taken by the company.
This limited liability is often referred to as the "corporate veil" because the owners of the company are generally protected by it. One of the best ways to prevent your corporate veil from being pierced is to maintain corporate formalities.
For example, keep a separate bank account for your business. Any payments made to the business owner from the business should be in the form of a paycheck written from the business account to the owner’s account. The owner should never simply take cash out of the business account for personal use.
Other ways to avoid personal liability arising from your limited liability business include obtaining a federal tax ID number for your business, and either having enough money in your bank account to cover expected liabilities for the business, or taking out an insurance policy to cover those liabilities.
Tip # 2 - Hire a capable accountant
Hire an accountant who is familiar with your company's industry. Your accountant will give you advice on what can and cannot be deducted and − almost as importantly − give you an idea which deductions are likely to raise red flags for Internal Revenue Service agents and lead to an audit.
While there are plenty of books explaining business tax deductions, there is a huge difference between theory (what may legally be deducted) and practice (what actually can be deducted without causing an audit). It may not be worth deducting a questionable item that will save you $500 if that deduction triggers an audit that costs $1,000.
Tip # 3 - Treat lawsuits seriously
Some small businesses do not appreciate the legal consequences from an unanswered lawsuit.
In South Dakota state court, you have 30 days from the date you are served with a complaint to respond to it. The response is a document called an "answer."
Failing to respond to a complaint results in a default judgment. Legally, a default judgment is the same as a judgment obtained by jury trial.
Some small business owners believe that if they do not respond to a complaint, there will be only a small consequence, fine, or penalty. This is not true.
If a South Dakota business fails to respond to a complaint − even if the complaint is completely frivolous − the plaintiff can get a judgment for the value they requested in the complaint.
Finally, your business account can be executed upon, meaning money is taken out of the account − with the help of the court − and given to the plaintiff or the company can have its physical assets taken by the court and given to the plaintiff.
Source: Metropreneur Columbus