A Story to Grow From: But I have a LLC!
It was a fine summer Monday, and Randy was feeling good that his business was finally getting requests for new jobs, more in line with business before the downturn.
He knew what a struggle it had been to stay afloat through the last two years. He felt that he would soon be able to catch up on his past due bills to suppliers. Too much brain damage dealing with constant collection calls and no money to satisfy them.
The day was flying by when late in the afternoon a stranger came in the office and asked for him. When he identified himself the person said I have a legal document to serve on you. After regaining his composure, he began to read the document. It was a request to answer a claim for payment of the amount due to one of his suppliers, and also requested payment of certain legal expenses. The real surprise was that he, individually and the company were named in the complaint.
It was just to avoid this situation that he had formed his corporation. He had always been careful to notify all of his suppliers that his company was a corporation. Why was the supplier naming him in the complaint?
He handed the document to Bill with the request that he file whatever needed to be filed to remove him as a defendant in this case.Bill said, “We may be able to get you put personally provided you have appropriate documentation for your corporation. You should have written minutes of each annual meeting of the Shareholders and Board of Directors, and possibly minutes for special meetings to ratify contracts and other actions.” “You see, corporations are sometimes pierced for not acting like a corporation such as written meeting minutes. However, if the corporation does not have documented evidence that it was operating as a corporation it can be disregard the corporation name merely a trade name.”
“So, bring me all of your business documents and I will proceed.” Randy said, “But I do not have any documents except my filing with the State, Bylaws and my Organization Meeting Minutes.” “It never occurred to me that I should have a meeting with myself once a year and reduce that to writing.”
“Well, Bill said, that is unfortunate and it may allow the supplier’s lawyers to go past your corporation and come after you. You have slipped out of limited liability to become personally liable for all of the company’s debts.” “Even though you are the sole shareholder of your corporation you should have documented all decisions as being done as the ratified by the Board of Directors and Shareholders.”