Protected? Maybe not .... was Re: Incorporation questions

[Farrell]

To the best of my knowledge, both Alan and Paul are correct. But what needs to be emphasized is that for the corporate shield to fail (or be pierced), one needs to be guilty of negligence, malfeasance, criminal or just plain boneheaded activity. If your work is up to normal standards, and you are not trying to screw anyone, the corporate shield should remain intact and offer the expected immunity. 

If you are "driving your service vehicle (with the neon advertising all ablaze) at 10 AM on Tuesday, on your way to tune that church's piano" and take out a new Rolls Royce, assuming it was an accident, the corporate shield should still remain intact. If someone can prove that you have some sort of long-standing hatred of Rolls Royce automobiles and can prove that you intentionally targeted that car to run down, then you would be guilty of criminal intent and the corporate shield would fall.

In most cases, where you are conducting business in a professional, competent and ethical manner, the corporate shield should offer your personal assets liablity protection. That's the way it is designed.

I you go into a home drunk (negligent SOB) and fall on the piano and tip it over onto the baby, sure, kiss your home and car and everthing else you own goodbye - S-Corp or no S-Corp.

Terry Farrell

  ----- Original Message ----- 
  You have it right. With the nit that has to be picked that, before the "piercing of the corporate shield", it makes no differerence between the corporate entity, C or S, or LLC, under the umbrella of which the work done or not done is being litigated, And it is inarguable that the anyone who wishes to push for the assets beyond the corporate holding will be forced to make special pleadings for recovery. I've seen it happen, so it does happen (a former colleague refinisher). But the shield is a shield nonetheless, pierce-able or not, and stands as first line of defense at least; not so for the sole-proprietor who stands alone and "unprotected" unless properly insured. Our rebuilding business is a sole-proprietorship, and the school is an LLC. Another advantage of the LLC, by the way, is that I can at any time subsume my current sole-proprietorship under it's umbrella; this is a recent change in the laws concerning LLC structures. Pier! ce-able or not, it is a more "protected" structure than otherwise. As you say, "If you want to sleep at night..." :-)

  Paul

    I am certainly open to being corrected by someone with real-world experience in this, or a law degree, but I'm pretty sure I have it right.






  -----Original Message-----

  Y'know, I'm not sure about some of the comments on the "Incorporation questions" thread. 

  In another life I had an executive consulting firm with six employees and about a $500K annual gross. I had it set up as a Subchapter S, for all the right reasons, but was told by both my lawyer and my CPA that "piercing the corporate shield" in liability cases and other lawsuits was distressingly easy for "the system" to do. The big corporations tend to have big corporate assets for the pit bulls to attack, but the small corporation--especially in a services business--usually has no significant assets and the courts will definitely tap into the owner's personal assets, particularly if the issue arises from the negligence, malfeasance, criminal or just plain boneheaded activity of the stockholders/owners.

  One real protection, however, is that assets belonging to the corporation (LLC or whatever) ARE protected from liability judgments against the owner(s) that arise from non-business activity. For example, if you are driving the family to church in your 1977 Yugo and destroy a brand new Rolls Royce because you failed to yield at an intersection, your business assets are likely safe. But if you are driving your service vehicle (with the neon advertising all ablaze) at 10 AM on Tuesday, on your way to tune that church's piano, you might be trading your house for their new car.

  So, if you drop granny's Bosey Imperial down three flights of stairs, your retirement and kids' college funds are probably, as the French say, histoire -- regardless of how your business is structured for tax purposes. The key to sleeping well at night is liability insurance, incorporated or not. Good info here http://www.allbusiness.com/finance/insurance-liability-insurance/2601-1.html

  I am certainly open to being corrected by someone with real-world experience in this, or a law degree, but I'm pretty sure I have it right.

  Alan Barnard
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