Daniel P. VanEtten, Esq.
Business Litigation

A skilled corporate or estate planning attorney can help to insulate you personally from the risk of a lawsuit related to your corporate entity’s business dealings.

Are you starting your first business? Maybe you’re a seasoned capitalist starting a new venture? Perhaps you’re looking to start a new non-profit to fill an unmet need in the community?

In each case, one of the first pieces of advice you are likely to receive is to form an entity, such as a corporation or a limited liability company, to protect yourself from lawsuits filed against your company.

The reason for forming an entity to protect personal assets from a lawsuit against your entity is what is known as the corporate shield doctrine. This doctrine stands for the general rule that an entity’s officers, directors, managers and members are not personally responsible for the acts of the entity. For instance, that person is likely protected if their entity defaults on a business contract.

Unfortunately, most people misconstrue this doctrine and mistakenly believe it means that they are fully protected so long as they are acting on behalf of their entity. For instance, I have heard individuals say, “go ahead and sue, my company doesn’t have any assets, and I’ll just have it declare bankruptcy.”

The corporate shield doctrine does not apply when an individual intentionally or negligently commits a tortious act. Whether that tortious act was done on behalf of the entity is immaterial as it relates to personal liability. In such an instance, both the entity and the individual personally are likely to be sued. This often comes as a shock to the owner of the entity.

So what are some examples of tortious acts that may personally expose entities’ officers, directors, managers and members to personal liability? When that individual:

• Signs a real estate contract disclosure statement in which they intentionally or negligently omit information that legally should have been disclosed;
• Personally negligently performs a job or project; or,
• Helps their entity engage in fraudulent or deceptive business practices.

These are merely three common examples of instances in which the corporate shield doctrine may be pierced and the person individually sued.

Does this mean that you should not form an entity? Absolutely not!

What this does mean is that you must be strategic in how you personally interact with your entity and its business dealings. It also means that you should take prudent steps to ensure that your personal assets are protected from an adverse judgment. A skilled corporate or estate planning attorney can help to insulate you personally from the risk of a lawsuit related to your entity’s business dealings.

For more information about insulating you personally from the risk of a lawsuit related to your corporate entity’s business dealings, contact Business Litigation Attorney Daniel VanEtten at 941.748.0100.