Business Law BUSINESS OWNER LIABILITY: PIERCING THE CORPORATE VEIL, FIDUCIARY DUTIES, AND GENERAL...

Business LawBUSINESS OWNER LIABILITY: PIERCING THE CORPORATE VEIL, FIDUCIARY DUTIES, AND GENERAL LIABILITY

William (Bill) Dolan, Esq.Dolan Law LLC484-508-8582 (office)302-547-3903 (direct)888-547-4414 (fax)[email protected]

Business Owner Liability1. Introduction

2. Business Entities Overview

3. Sources of Business Owner Liability

4. Hypothetical Situation


Business Owner Liability1. Introduction

a) Business Owner and Lawyerb) UPL Committeec) Goals of This Presentation


Business Owner Liability2. Business Entities

a) Sole Proprietorshipb) Partnershipc) Limited Partnershipd) Corporatione) Limited Liability Company


Business Owner Liability3. Sources of Business Owner Liability

a) General Liabilityb) Piercing the Corporate Veilc) Breach of Fiduciary Duties



a) General Liabilityi. Contract

A. Sole ProprietorB. Partners (in a general partnership)C. General Partner (in a limited partnership)

ii. Tort (negligence, fraud, battery, assault, malicious prosecution, etc.)A. All individuals (for her or her own tortious conduct)B. Employers (for employees torts committed in scope of employment)

I. Sole Proprietor II. PartnerIII. General Partner

iii. Statutory



b) Piercing the Corporate Veil



c) Breach of Fiduciary Dutiesi. Who owes fiduciary duties and to whom, generally?

A. A fiduciary duty exists in “a situation where one person reposes special trust in and reliance on the judgment of another or where a special duty exists on the part of one person to protect the interests of another.”

I. Officers to the company and to shareholders.II. Directors to the company and to shareholdersIII. Controlling shareholder to minority shareholders.IV. Partners of a partnership to other partners.V. Members of an LLC to the company and other members. VI. Manager of an LLC to the company and the members.

ii. What duties are owed?A. Duty of Care

I. Duty of Good FaithB. Duty of Loyalty



c) Breach of Fiduciary Duties


Business Owner Liability4. Hypothetical Situation

Jon and Bev decide to make a movie.


A potential investor says he’s in if the business is taxed as a partnership. They call their accountant for advice on setting up the business. Their accountant gives them the following advice:

1) LLCs have a flexible a) taxation structure and can be taxed as a partnership or a corporation; andb) ownership structure;

2) LLCs afford the parties wide latitude in setting out the rights and obligations of the parties; and3) LLCs provide liability protection for the business owner like a shareholder in a corporation.

UPL

Business Owner Liability


Business Owner Liability Jon and Bev love the LLC idea, so the accountant forms the entity (Picture LLC) and has the corporate kit sent directly to Jon and Bev, who upon receipt immediately place it on Jon’s bookshelf with his other corporate documents.

UPL

Corporate Formalities – PCV Factor.

Jon and Bev need more money, so they decide to start pitching potential investors for capital.

Securities Violations – Fraud – PCV Factor.


Business Owner Liability Jon and Bev find that the movie business is tougher than they thought, so they want to generate some cash flow, so they can make some money for their time and effort. Luckily, they have a friend at Budweiser, who convinces the head of marketing to make a $100,000 product placement deal with Picture LLC to have Budweiser beer in the movie. Ecstatic, Jon uses his $50,000 to put a deposit down on a new car. Bev puts a big dent into her husband’s gambling debts with her half.

Duty of Loyalty – Breach of Fiduciary Duty.


Business Owner Liability While doing her grocery shopping at Target, Bev learns that her Target card is maxed out. Unshaken by the embarrassment of her card denial, Bev pulls out her Picture LLC Master Card and completes her purchase with confidence.

Co-Mingling Assets and Liabilities – PCV Factor.

With insufficient capital to complete the film due to some unpredicted expenses, Jon and Bev decide to trim the production budget. By allowing Picture LLC to self-insure, they save twenty thousand dollars in overhead while preserving the creative integrity of the picture. On top of the world, Jon and Bev spring for an all expenses paid trip for them and their families to go to Caesars’ in Atlantic City, on Picture LLC.

Undercapitalization – PCV Factor.

Co-Mingling Assets and Liabilities – PCV Factor.


Business Owner Liability Bob, the second assistant director tripped on some loose wires that, contrary to custom, were not affixed to the floor. Sadly, Bob landed on several glass bottles of Budweiser, which tore up his hands and will prevent him from ever playing professional badminton. With no other option, Bob sues Picture LLC for negligence. Unfortunately, Bev’s husband went on a bender while they were in Atlantic City and disappeared for three days with Picture LLC’s debit card, leaving the bank account drained. So, Picture LLC has no money (or insurance coverage) to compensate Bob.

Undercapitalization – PCV Factor

Negligence – No Assets – Fraud – PCV Factor.


Business Owner Liability Since the Atlantic City trip left Picture LLC with no money to pay for food service, Jon asks Pizza Brother’s, Inc., the business he uses to cater his other company’s events, to bring a food cart to the set. Pizza Brother’s, Inc. requests payment in advance in accordance with its normal business practices for a new customer. Jon tells the sales person that “it’s all one and the same. It’s all under me.”

Identity Confusion – PCV Factor

Holding Out – Personal Guaranty or Guaranty by Other Company – General Liability by

Contract.


Business Law BUSINESS OWNER LIABILITY: PIERCING THE CORPORATE VEIL, FIDUCIARY DUTIES, AND GENERAL...

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