A Vital Element When Catastrophe Happens

Jim KrendlAlthough many people never think about it, the biggest reason for forming a corporation is to protect the individual owner from personal liability for corporate acts. In the everyday business world, banks, landlords and other smart people get personal guarantees for corporate debts, leases and other obligations. Corporate limited liability doesn't do you much good for the debts you personally guaranty. However, limited liability is vital when a catastrophe happens, like a horrible accident in which people are killed or badly injured.

If your liability insurance isn't adequate, corporate liability is your next line of protection. Plaintiffs, however, look for ways to hold individual owners liable. The most common form of attack is known as "piercing the corporate veil." Principal arguments in piercing the veil and holding individual owners (and maybe other people, like employees) liable include showing that the corporation was under capitalized, that it failed to identify itself as a corporation (for example by not using "Inc." on documents and signs) and failed to follow proper corporate formalities (like holding shareholders and directors meetings).

Protect yourself, talk to your lawyer and make sure you are doing the things necessary to keep the corporate veil of your company from being pierced.

 DISCLAIMER: This blog is a highly simplified general discussion. It is not legal advice. Such advice should come solely from qualified legal counsel who understands your situation and who is familiar with all relevant facts, variations in state and local laws that may apply to you, and other matters beyond the scope of this blog.

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