Corporate Formalities … or not …

Heading home from court the other day, I heard on the radio an ad from a company promising “inexpensive” incorporations.  They emphasized that there was no attorney needed.  It made me laugh.  I had just heard a judge tell opposing counsel that his client wasn’t likely to enjoy the protection of corporate form (through no fault of that particular attorney).

You’ve probably heard of “piercing the corporate veil”, which means that the court will disregard the corporate entity and allow you to pursue the owners personally.  At the hearing, the judge advised opposing counsel that his client had completely ignored corporate formalities, such that his client ‘wasn’t even wearing a dress, let alone a [corporate] veil’, resulting in suppressed laughter from the attorneys in the courtroom (save for one.)

What lesson can you learn from this?  Given an owner who was too lazy (?) or too ‘cute’ to adhere to even basic formalities, it may be a sort of “well, duh!” moment, if your attorney has emphasized to you the importance of formalities.  If not, it should be worth hour or two of your attorney’s time to educate you on how to safely operate as a corporate entity (including as a limited liability company).

Here, the price of ignorance may be personal liability.  In less than an hour of the attorney’s time, the owner could have learned what dreadful consequences might result from sloppiness with corporate formalities, which formalities are most important, and what formalities are most relevant to the particular business activities of this owner.

So, think about spending an hour with your business attorney in the New Year for a refresher, to make sure that you can enjoy the maximum benefit from the protections offered by your limited liability entity.

… next post – Judges do “get” Facebook and LinkedIn in the business world…


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