Piercing The Corporate Veil…Accidentally…
One of the great things about having a company or business is the protection from legal claims that you get. When the company gets sued, it is the company that gets sued, and the company that potentially owes a judgment—not you, individually.
There are some exceptions to this corporate shield, where you could personally be held liable, but those situations are rare. For example, if you were to personally defraud someone, you could be personally sued, even if the fraud was technically committed in the name of the company.
But most people who find themselves personally liable find themselves in that situation because of honest mistakes, which inadvertently subject themselves to personal liability. They simply make errors, and find themselves liable for debts or judgments that should have been debts or judgments that the company owes.
One major example is the wording of a business contract. Many people know that signing a contract “on behalf of” a company, or “as president” of a company, is one way to make it clear that even though your personal signature is on a contract, you are only signing for, and on behalf of, the company.
But one thing people forget to look at is the body of and the wording of the contract itself. Language inside of the contract can sometimes “override” a signature that is purportedly signed as an officer of a company.
If there is language in the body of the contract that would seem to indicate—or at least, give the other side a plausible argument that its you, personally, who should be sued, and not just the company—you could find yourself on the hook for a judgment, individually, regardless of how you signed the contract. An attorney can review your agreement and see if there is anything in your business contracts that could inadvertently subject you to personal liability.
Intermixing and Intermingling
Another problem that people often make inadvertently, especially in smaller companies, is intermingling the company’s business and finances, and the personal officers or shareholders. In other words, the bank accounts, expenses, expenditures, or revenue, are not kept sufficiently separate. Thus, the idea of a company separate from an individual is really just a fiction, in name only.
This is very close to an “alter ego” theory, where a court can find that there is so much intermingling between an individual, and a company, that the company “is” the person. The company is an alter ego of the person. There is such a high degree of control of a company by one single person, or such a lack of separation between the person and the company, that they are considered to be one and the same.
The failure to follow corporate formalities or legal requirements—even procedural ones—is also something that a court will look at to see if there is an “alter ego” theory.
Call the West Palm Beach business litigation attorneys at Pike & Lustig today to keep yourself legally safe, and to have all your business contracts reviewed.