Thread: Piercing the Corporate Veil

Developer, agent ordered to pay $7 million for Florham Park, NJ, house sliding down hill | dailyrecord.com | Daily Record

I read that the judge put aside the LLC's and opened the suit to the individuals assets

I decided to start a separate thread because most of us are LLC's but the bigger question is "are we running our LLC's like corporations?" Do you have a corporate charter? Do you hold annual meetings and record minutes of the meetings? Do you pay yourself on a weekly or bi-monthly basis?

If you said no to any of the things above you are putting your LLC at risk and the limited liability protection with it. Although I don't have personal experience with lawsuits I have been told by lawyers is they first thing they do is get your contract thrown out and then attack your LLC. Is the case above evidence was presented that the companies were not being run as corporations and should not be afforded the limited liability protection, the Judge agreed and now all of their personal assets can be pursued

//Rick

Originally Posted by Rick Bunzel

Developer, agent ordered to pay $7 million for Florham Park, NJ, house sliding down hill | dailyrecord.com | Daily Record

I read that the judge put aside the LLC's and opened the suit to the individuals assets

I decided to start a separate thread because most of us are LLC's but the bigger question is "are we running our LLC's like corporations?" Do you have a corporate charter? Do you hold annual meetings and record minutes of the meetings? Do you pay yourself on a weekly or bi-monthly basis?

If you said no to any of the things above you are putting your LLC at risk and the limited liability protection with it. Although I don't have personal experience with lawsuits I have been told by lawyers is they first thing they do is get your contract thrown out and then attack your LLC. Is the case above evidence was presented that the companies were not being run as corporations and should not be afforded the limited liability protection, the Judge agreed and now all of their personal assets can be pursued

//Rick

You are confusing LLC's with Corps, they are very different.
I had an S corp for a different business before and prefer the LLC I have now.
I still have the E&O on myself rather than the company since I am the one doing the work.


Here are a few links.

LLC vs S Corp: CPA Discusses S Corporation, limited liability company choice
LLC - Corporation - LLC or Corporation

The builder offered to take it off his hands or repair it from what I understand

This statement is what is wrong with our legal system which the judge in this case heard.

"He said that when the Akhtars first complained, he hired an engineer who identified structural concerns, and that he offered to fix the home or even buy it back but was rebuffed."

The home was still being built. It was not even finished yet. At best the buyers should have got some expense money and maybe a bit for inconvenience and all their money back.

As bad as our legal system is with frivolous law suits the judge knowing that the buyers had an offer of an engineer that found concerns and to repair/buy back and or make right in some way and the judge went forward with this absolute ridiculous law suit is criminal in itself.

Another ridiculous amount was the 3/4 of a million in legal fees.

The builder (bagged or not) offered to make all right and the buyer talked to a ;lawyer and said no way man, we are going for the gold.

Back to the thread question.

As you see by that law suit it really does not matter what you do business as. If someone is out to get you and that judge is on the bench or his cousin Bill, you are losing and everything goes away.

I was incorporated and was paying out way to much in taxes and everything else that falls into business expense so I dropped it. No I do not handle an LLC like a Corp.

Tort reform is how I will end this. 3/4 of a million in legal fees after all offers to repair/replace or make right were refused. Watch out America.

Here is how home inspectors can prevent having their corporate veil pierced.

From what i understand no Corporate. or LLC. is going to protect you or your assets in a law suit. If you as a person do something wrong you are liable for your action.

you may want to have this explained by an attorney that knows the law.

If you have an Corporate. or a LLC. to protect your assets you should get a better attorney.

If you have this for tax reason then you a making some big bucks
and good for you.

Best

Ron

A corporation or an LLC can protect your assets in the event of a lawsuit, however companies are required to show 'corporate formalities' so that the court knows that the entities where not setup as a shell to avoid liability issues.

Generally the things you need to do for a corporation or an LLC
1. File you annual report - Not filing this can result in loss of good standing for you business entity and this causes all sorts of problems.
2. Maintain corporate formalities, prepare minutes of meetings, hold at least an annual meeting or complete a waiver of the annual meeting.
If do not have the experience to do this on your own, you can hire an attorney to do it for you at an hourly rate or hire a company like this one CL@S Worldwide Information Services to help you with the annual requirements. It is cheaper in the long run to pay a few dollars to keep the liability protections guarded than to make a mistake that will result in loss of liability protections and open all your assets up for a claim.

What Edward said is true. More at I Formed a Corporation or Limited Liability Company. Now What? - InterNACHI

An LLC or an Inc. can limit your liability for your employees actions, but it cannot shield your assets from judgments against you if you personally performed the inspection and are personally sued for negligence.

It all depends on who or what entered into the inspection agreement with the client and who or what the client made the check out to.

If the consumer contracted with the corporation and paid the corporation, they can't hold you or any other stockholder personally responsible unless they can first pierce the corporate veil.

That's not my understanding of the law in IL -I have been told by two attorneys that if I am ever sued the result of an inspection, I will be personally sued for professional negligence in addition to the suit against the Corp., and would be personally responsible for the payment of any judgment for professional negligence, which would be a separate judgment from any against the Corp.

Originally Posted by Michael Thomas

That's not my understanding of the law in IL -I have been told by two attorneys that if I am ever sued the result of an inspection, I will be personally sued for professional negligence in addition to the suit against the Corp., and would be personally responsible for the payment of any judgment for professional negligence, which would be a separate judgment from any against the Corp.

So it could be a double hit in $ judgment awarded.

Originally Posted by Lisa Endza

It all depends on who or what entered into the inspection agreement with the client and who or what the client made the check out to.

If the consumer contracted with the corporation and paid the corporation, they can't hold you or any other stockholder personally responsible unless they can first pierce the corporate veil.

The way it as explained to me, it's a bit like having an accident in a company owned car: I can be individually sued for my actions as a driver, the Corp can be sued as the owner of the car, but the officers of the Corp. normally do not have individual financial responsibility if the Corp. is found liable.

When you are an officer of a incorporated home inspection entity and are personally performing an inspection, you legal position is similar to an officer of a corporation who has an accident while driving a company car - you are not personally responsible for satisfying a judgment against the corporation, but you are responsible for satisfying a judgment against yourself personally.

So while is correct to say that incorporation normally protects you against liability as a officer of the corporation, it's misleading to suggest that it protects you from liability for a personally performed inspection.

As it was explained to me, what incorporation can do is limit your personal liability as an officer of the corporation for the professional negligence of other inspectors employed by the corporation.

In our business you are not only the company CEO, owner, Soul Proprietor etc you are the one actually doing all the work/inspections. If you had employees and did not do the inspections your personal protection would be much greater. There would be more of a shield between you and the actual inspection process. But, you still are not shielded completely. All that depends on how you operate your business and how much you may mix business and personal expenses.

Not hiding behind a corporate entity in this business actual gives you a smaller pay out in many cases as they only go after you and you only have so much for them to take. If they go after the corp and you they many very well get paid much more, totally destroying you.

Originally Posted by Ted Menelly

In our business you are not only the company CEO, owner, Soul Proprietor etc you are the one actually doing all the work/inspections. If you had employees and did not do the inspections your personal protection would be much greater. There would be more of a shield between you and the actual inspection process. But, you still are not shielded completely. All that depends on how you operate your business and how much you may mix business and personal expenses.

Not hiding behind a corporate entity in this business actual gives you a smaller pay out in many cases as they only go after you and you only have so much for them to take. If they go after the corp and you they many very well get paid much more, totally destroying you.

I disagree with you analysis. As a sole proprietor or a general partner in a partnership you have unlimited liability. In your example the assets of the business would belong to the sole proprietor or general partner so the payout would be the same, you just make it easier for the attorney to get to all of the assets.

Originally Posted by Ted Menelly

Not hiding behind a corporate entity in this business actual gives you a smaller pay out in many cases as they only go after you and you only have so much for them to take. If they go after the corp and you they many very well get paid much more, totally destroying you.

I'm trying to imagine how this could be the case.

For example, I used to hang-glide, and knew the owner of a company that built hang-gliders.

From time to time, people would get killed or seriously injured using his products.

His attorney would say to their attorney:

"The physical assets of this company are some aluminum tubing, some sail cloth, and and a few industrial sewing machines.

If you win, and we liquidate the company, Bill is just going to buy all this stuff back at auction for pennies on the dollar and start another company - the real asset of this company is is skill and reputation as a designer, and you can't touch it."

He was never sued.

Most single-inspector HI companies are in pretty much the same boat, they might own a few thousand dollars worth of tools, and perhaps a vehicle, but that's about it - the real value is in the inspectors skill and reputation, and there is no way to collect a judgment against that - about the best someone could do was attempt to sell the company URL and customer list to some other inspector.

OTOH, many inspectors are going to have a net worth in excess of the Corp.'s - for example, a personal residence.

And either case, the plaintiff is going to go after the inspector personally.

So it seems to me they could only "get paid much more, totally destroying you" to the extent that they also obtained a judgment against the Corp.'s assets - which as noted above, are usually not large.

A number of years ago a company I worked at had an attorney look at the customer contract.
The attorney said to include this in the contract.
This is from mostly from memory, so it might have been somewhat different.

The customer or client, and any holder of this document, hereby agrees that by accepting or relying upon this document or the information it conveys, he, she, or they, shall not bring suite or make claim(s) against, any employee, officer, shareholder, stockholder, vendor or supplier, contractor or subcontractor, or representative of, or for the company.

The customer or client,
and any holder of this document,
This includes Uncle Joe, the bank, RE Agents, and any party or entity that makes a claim using the inspection report (this document) as a basis for the claim.
This is to stop claims from someone that was not even a party to the inspection, but is relying on the report as a basis to make a claim.
If they do not rely on the report, the chance that someone will make a claim is much smaller.
It is much easier to make a claim if you have the report, but by accepting or relying on the report they have agreed to accept the conditions set forth in the report.

hereby agrees that
by accepting or relying upon this document or the information it conveys,
he, she, or they, shall not bring suite or make claim(s) against,
any employee, officer, shareholder, stockholder, vendor or supplier,
contractor or subcontractor, or representative, of or for the company


Claims can still be made against the company.
But, You as an employee, officer, stockholder,,, are protected from claims against you personally.

This is especially important/useful for companies with several employees or companies that use (sub)contractors to perform work.

Scenario
The company sends John, an employee (or subcontractor), to do a job.
Something goes wrong and a claim for damages is made.
An attorney files a claim against the company for doing the work improperly.
But the attorney ALSO files a claim against John, personally.
The attorney calls John and offers to dismiss the claim against him if he will testify against the company.
To avoid disaster John agrees, and is now a witness against the company.
Having an employee testify against you can be very difficult for the company to overcome.
However if a claim could not be made against employees, then John would not have been threatened with a lawsuit.
The stresses on an employee (subcontractor) that is facing a personal lawsuit can make them forget a lot of important facts that could help the company’s defense. But the worst part is, it could cause them to remember a lot of things you don’t remember saying, and that could really hurt the company.

The other thing I was told is that, pace "The Shawshank Redemption", if you are married and you really trust your spouse, you can put all major personal assets in their name.

If you want to go a step further, they can form a Corp., and you can become an employee, using a vehicle and tools provided you by the corporation.

This will work, provided that all of the necessary formalities are observed - however you have to be very careful to observe all those formalities, and keep all required records.

Myself, I prefer just to pay the E&O, for both the Corp. and myself.

I sleep much better this way.

"if you are married and you really trust your spouse, you can put all major personal assets in their name.

Myself, I prefer just to pay the E&O."

Sooo, you are saying what?

Well then, I guess you gents need to take a course on how and where you personal assets go and such. There are so many ways to bury your assets where no one can touch them. If you live in a homestead state it would be hell and about impossible to touch your home. Your vehicles are about the same. Money in the bank....what money in the bank. If you have money in a bank or traceable to you then you are in serious trouble anyway. You stand no chance of coming out of any law suit without being raped.

Hide your assets gents. They cannot get blood from a stone. If you think you are saving money or anything to give to your children then please think again. They may get 40 to 50% of it if they are lucky. There are ways of handling that as well. The government truly believes that that money and those assets belong to everyone else in the country and not your children. Think long and hard and investigate deep and you will find out how to protect yourself and your family. It may cost you a little now or 50% later. Your choice.

Please do not take my words lightly. I hear of home inspectors and folks from all walks of life being afraid of losing everyhthing and there will be nothing left in the end to pass on to your family. There are ways gents. Your money does not belong to everyone else. Protect it.

Originally Posted by Rick Cantrell

"if you are married and you really trust your spouse, you can put all major personal assets in their name.

Myself, I prefer just to pay the E&O."

Sooo, you are saying what?

Ha. Actually my wife (who used to work at state Bar Assn.) was absolutely adamant that I carry E&O from day one.

Knowing lawyers, and all that...

Since you mention E&O
Make sure that all of your policies name YOU as co-insured.
This is important on corp insurance, because although the corp may be covered, you personally may not be unless named as co-insured.

Well, if someone is depending on "extra-legal" methods of protecting assets, that's a whole 'nother story.

FWIW, my experience has been that such methods are often more trouble than they are worth and/or expose your assets to different- and often more difficult to assess - risks.

And I certainly hope that no here has gotten themselves involved in "Pure Trusts" or similar schemes.

Originally Posted by Rick Cantrell

Since you mention E&O
Make sure that all of your policies name YOU as co-insured.
This is important on corp insurance, because although the corp may be covered, you personally may not be unless named as co-insured.

Absolutely correct.

And keeping E&O in effect - as has been discussed elsewhere here - requires attention to detail as well.

You can currently pass on up to $5 million tax free (at the federal level). They argue about it a lot, so it can and probably will change. $5 million gives me a little breathing room before I worry about hiding anything.

10M for a husband and wife. You have to be doing petty well to worry about the Feds taking a bite from your estate.

Originally Posted by Ron Bibler

From what i understand no Corporate. or LLC. is going to protect you or your assets in a law suit. If you as a person do something wrong you are liable for your action.....Ron

I've been preaching this for years. You (we) are liable for our own negligence. The Corp or LLC will not protect you from your own negligence.

Now, I do have questions about this "piercing the veil". Anyone chip in and give your opinion or facts.

• I have an LLC. It seemed like a good idea at the time. Now....I don't think it means squat. The Great State of Texas has very simple online documents for creating an LLC. Nothing worth paying any attorney to do.
• I have a separate checking account.
• I don't pay myself monthly or bi-weekly. I take money as I need it.
• I sometimes use my business account to buy personal stuff.
• As the Feds could care less about LLC's, I file as a sole proprietor. That way I'm only taxed once. Per the Feds, all of the money my wife and I earn is mixed regardless what account it's sitting in.
• My truck is in my name and not the company's. I originally titled in my company's name, but my insurance agent suggested that I change it.
• As an LLC only protects those who would invest in my company (no one), I am personally liable for all of my screw-ups....as it should be.
• I can be sued by anyone at anytime for anything.
• In TX, I can keep my house and probably a car or two.
• The LLC will not keep any of my savings accounts from being spared should the Axe-man cometh.

I am of the opinion that there is no veil. Whether or not I change something in the list above to appear more legal, there is, in fact, nothing I can do to protect my assets from sued (whether I'm negligent or innocent).

Am I wrong?

Am I wrong?

Yes, you are wrong.

Originally Posted by Lisa Endza

Yes, you are wrong.

I'm sorry. I don't believe you. Please tell me why without posting the link again.

Please tell me why without posting the link again.

I can't explain asset protection for you without posting links. Email Nick at fastreply@nachi.org and he will help you. He is an asset protection expert.

Originally Posted by JB Thompson

I've been preaching this for years. You (we) are liable for our own negligence. The Corp or LLC will not protect you from your own negligence.

I sometimes use my business account to buy personal stuff.

Am I wrong?

That you should not do. You can reimburse yourself or pay back the business, but you should not let it slide, as that can end up causing the LLC to be considered one and the same as you personally.

There are other factors involved in addition to the ones you listed, such as what is in your agreement and how the checks are paid to the LLC.

Anyone chip in and give your opinion or facts.

• I have an LLC. It seemed like a good idea at the time. Now....I don't think it means squat.

Years ago my attorney and CPA wanted me to incorperate also, I think the only benifit was to them

I have a separate checking account.
That's good

• I don't pay myself monthly or bi-weekly. I take money as I need it.

You should receive a paycheck based on your work, just as any employee would expect.

• I sometimes use my business account to buy personal stuff.

Not good.

• As the Feds could care less about LLC's, I file as a sole proprietor. That way I'm only taxed once. Per the Feds, all of the money my wife and I earn is mixed regardless what account it's sitting in.

You have in effect lost your status as an LLC and are a sole propritorship.

• My truck is in my name and not the company's. I originally titled in my company's name, but my insurance agent suggested that I change it.

Not really a problem

• As an LLC only protects those who would invest in my company (no one), I am personally liable for all of my screw-ups....as it should be.

True

• I can be sued by anyone at anytime for anything.

True

• In TX, I can keep my house and probably a car or two.
• The LLC will not keep any of my savings accounts from being spared should the Axe-man cometh.

If run as a seperate business an LLC can help to seperate your personal assets from company assets.

Originally Posted by Rick Cantrell

• I sometimes use my business account to buy personal stuff.

Not good.

I understand why some would not think this is prudent, but I haven't seen any evidence that in an LLC that files as a sole-proprietor, it is an issue. Always willing to listen to good advice though.

Originally Posted by Rick Cantrell

• As the Feds could care less about LLC's, I file as a sole proprietor. That way I'm only taxed once. Per the Feds, all of the money my wife and I earn is mixed regardless what account it's sitting in.

You have in effect lost your status as an LLC and are a sole propritorship.

Not sure how you mean this (I may be misunderstanding your meaning), but it very true. The IRS does not recognize LLC's as a business entity (it's a state thing) and so you must file as a sole proprietorship or a corporation. It's not necessarily a bad thing, but it's true.

Originally Posted by Jim Robinson

That you should not do. You can reimburse yourself or pay back the business, but you should not let it slide, as that can end up causing the LLC to be considered one and the same as you personally.

There are other factors involved in addition to the ones you listed, such as what is in your agreement and how the checks are paid to the LLC.

I understand the concept on this and what you're saying, but a single-member LLC is actually one and the same as.... me. I have yet had an accountant or lawyer tell me that my personal assets can be protected by using an LLC. Have I just happened to speak with poor accountants or lawyers? Well possibly, but I've done a lot of research on it since filing.

So my earlier point (granted I was being sarcastic) is that an LLC has the same value as a vapor. It will not protect your personal assets from being attacked if you are negligent during a home inspection.

So my earlier point (granted I was being sarcastic) is that an LLC has the same value as a vapor. It will not protect your personal assets from being attacked if you are negligent during a home inspection.

Not true.

Lets talk apples and apples when it comes to home inspectors and the article. If somebody is going to perform terrible home inspections on purpose and think the LLC or Corp is always going to protect them plus doesn't separate his business finances with his personal finances, then yes, the corporate veil should be pierced as done in this article. But to apply the result of this article to the normal situations that occurs to home inspectors is just silly.

This reminds me when many were talking about us getting sued if we take digital picture during the home inspection. Or, if we include digital pictures with the report, the client will discover problems that we didn't resulting in us loosing in a lawsuit. I think the silliest one is that our contracts aren't worth the paper they're written on - give me a break!

Originally Posted by Lisa Endza

Not true.

You keep making this statement, but without supporting evidence.

Please explain, *specifically*, how a LLC or Inc. protects a home inspector from a judgment against them based on a finding of professional negligence at an inspection they personally performed, when they are found to have been *personally* negligent.

A legal cite - or even a article written by a lawyer explaining this - would be helpful.

A good place to start would be an explanation of how this is different from when an individual is found to be personally at fault for causing a traffic accident when driving a company car p0n company business.

Originally Posted by Lisa Endza

Not true.

Hmmmm. Let me think about this. Should I take legal, or any other advice from someone that posts spam on this site to get website hits, and from one that's been named in countless law suits.
And from person known to weasle his way out of lawsuits by denying everthing, or blaming someone else.?

OR should I contact a local lawyer from my state for any legal questions I may have ???

If I were talking about piercing the corporate veil in the same breath as a managing member or other member of an LLC not being obligated for debts incurred by the LLC, then YES, the LLC provides protection.

I'm specifically referring to being negligent or being accused of negligence as the inspector and managing member of an LLC.

If I haven't made that clear, my bad.

Someone, with references, prove me wrong.

Regarding negligence - a lawyer would have to prove negligence unless you make it easy for them for example saying you inspected the attic and you never did. If you stay within your standards of practice a lawyer would have a difficult time proving negligence.

Regarding hiding assets - my understanding is that Nick is a master at hiding assets. For example what happened to the millions NACHO made during the real estate boom years??? I was told at one point to move assets into a family trust. However now that I am in Washington they doesn't appear to work here.

LLC's one of the reasons that the judge allowed the corporate veil to be pierced was that the owners were using the LLC's like piggy banks. If you treat the LLC's expenses and bank accounts like personal accounts then they (lawyers, the courts) have reason to believe that there is no division between them.

//Rick

what happened to the millions NACHO made during the real estate boom years???

We spent it developing these for you.

We spent it developing these for you.

That was witty