Corporate veil hard to pierce: Entrepreneurs may protect themselves against lawsuits with business incorporation
According to a report from Leagle.com, Frazao Building Corporation couldn’t get a job done – but the owners were never failed. In 2009, the company was sued for leaving incomplete construction work in the hands of a client. A disgruntled client sought damages, but the courts would have none of it.
In the ruling, the judge said there was no “wrongful or deceitful intent” on the company’s or owner’s part. The judge refused to to hold the business shareholders responsible and decided that the construction company didn’t do anything illegal – ruling “no fraud was committed that resulted in an injury to the plaintiff,” reports the source.
The corporate veil is hard to pierce, and what might be very costly suits against proprietors often amount to nothing but legal fees. While this is not to say that the company in question was right to abandon the job, all businesspeople can make mistakes. This is an extreme example of the benefits business incorporation may present an entrepreneur.
Leagle.com says that courts will rarely rule against a corporation, usually only in “exceptional circumstances” that might indicate companies are just a shell allowing citizens to perpetuate fraud.
In light of this, it might be smart for business owners to consider forming a company. In addition to protection against angry plaintiffs, certain entities – like LLCs and S corporations – come with a number of tax benefits that can help a new company get a strong start.