When shareholders invest into a corporation, there is an expectation of limited losses amounting to the financial investment made. However, if the company is not properly run, officers, directors and shareholders are exposed to the blade of the law. This is known as piercing the corporate veil. Therefore it is critical for any shareholder, director, or officer of a small corporation to understand what is required to protect your personal assets from exposure to creditors and the long arm of the government.
Proper capitalization is a business concept used to calculate the optimum amount of investment by the owner(s) of a small business operation. Optimum investment level allows for maximum return on the investment for an owner of a business. In conjunction with loans, leases, and profits an owner calculates the best level of investment to maximize return and minimize losses.