Business owners in North Carolina generally have some awareness of the importance in observing corporate formalities in order to avoid being subjected to individual liability for any debts or liabilities of the company. A failure to exercise corporate formalities or to keep the business separate can subject the owner of the business to a “piercing of the corporate veil” and lead to business owner liability. One lesser-known factor in the determination of individual liability of an owner of a company is whether the business owner or owners have formed multiple companies to engage in substantially the same enterprise. Excessive separate entities can be used against company owners to allow funds of all of the separate businesses to be subjected to liability. If you are engaged in a dispute where piercing of the corporate veil might be appropriate, contact the business litigation attorneys of Maginnis Law, PLLC at 919.526.0450 or submit a confidential new case inquiry here.
North Carolina courts have ruled that the owners of limited liability companies can be subjected to the same business owner liability under similar standards as owners of corporations can be sued individually. There had been some question in the past whether or not LLC owners enjoyed additional protection from veil piercing. There are, however, still significant benefits for small business owners to form an LLC rather than a corporation.
Individual owners of an LLC can be personally responsible if 1) they committed fraud or similar acts in their capacity as an owner of the company; or 2) they engaged in behavior that would allow the Plaintiff to pierce the corporate veil. Courts may be inclined to pierce the corporate veil in instances where the company engaged in 1) inadequate capitalization; 2) non-compliance with corporate formalities; 3) complete domination and control of the corporation so that it has no independent identity; 4) excessive fragmentation of a single enterprise into separate corporations.
A company might have an excessive fragmentation of a single enterprise in situations where a single owner forms a different LLC for each project or job that they engage in. This is common in construction projects, shopping centers, development of planned residential communities, restaurant franchises, and other similar ventures where business owners engage in the same business in multiple locations. If a single business or economic enterprise – with common ownership or a parent-subsidiary arrangement – uses multiple corporate shields simply to avoid liability, Courts have found that all of the fellow corporations can be charged.
Maginnis Law is a Raleigh civil litigation firm with business attorneys handling business owner liability disputes relating to breach of contract or lease, non-compete agreements, franchise disputes, and other business litigation matters. The firm handles disputes in Wake County, including Cary, Apex, Wake Forest, Morrisville, and other counties in the Research Triangle area. Contact the firm at 919.526.0450 to schedule a confidential free consultation regarding your business dispute.