Tag Archives | Liability concerns

Hiring? Tips Regarding the Process

Finding the right employees can be a daunting task.  Good employees can be the most important component to the success of your business.  While there are many sources for finding new hires, the internet, job search engines, internal postings, word of mouth, current employees, head hunters, etc., it is critical to go through the process thoroughly and properly.

For example, there are numerous employment laws that apply to many employers, such as The American With Disabilities Act, The Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, to name a few.  Be familiar with what laws apply to your company, and ensure processes and procedures to comply.

Along those lines, there are questions that can be considered either appropriate or inappropriate to be asked during the interview process.  Asking an applicant his age, marital status, ethnicity and so forth will get you into trouble, while asking about responsibilities in his most recent position, special skills, education and similar questions will suit you well.  It is critical to know the dos and don’ts before interviewing any candidates to avoid pitfalls and possible liability.

Some employers choose to use offer letters in hiring a new employee, while others are satisfied making the offer verbally.  In either case, be careful not to mislead the candidate or promise something you can not deliver.  For example, avoid statements that give a false sense of security, or what the applicant may understand to be a long-term promise of employment.

For high level executives, it may be appropriate to sign a formal employment agreement covering topics such as the position, term, salary, bonus and benefits, termination rights, job responsibilities and similar items.  Employment agreements also cover provisions regarding confidentiality, non-competition and non-solicitation.  Many companies make the mistake of overusing employment agreements; it is best to keep these to a minimum, reserved for high level employees.

Your employees are critical to your success.  Be sure your hiring tools are up to date and comply with the laws and regulations applicable to your company.

 

 

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Personal Liability – Piercing the Corporate Veil

One of the biggest advantages of running your business as a corporation, limited liability company or other corporate entity is that it provides limited liability to the owners.  Stated differently, the owners are shielded from personal liability.  However, you must be diligent in maintaining the corporate existence in order to enjoy such protection.

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One of the first things I tell business owners is not to treat the company as an extension of themselves.  At the top of my list is to avoid paying personal expenses from corporate accounts.  Do not write a corporate check to pay a personal expense, do not use a corporate credit card to buy your family’s groceries, do not use your corporate credit card to take your wife to the theater.  In addition, if the business owner has multiple businesses, I remind her to keep each corporate entity separate from the others.  Do not use one company’s check to pay another company’s expense and so on.  Comingling of assets can present similar problems as well.

Courts have regularly noted that if the business owner does not respect the corporate existence, an adversary will not be required to either.  In these instances, the adversary argues that the company is nothing more than the alter ego of its owners, and courts allow the adversarial party to “pierce the corporate veil” and seek to hold the business owners personally liable.

Respecting the corporate existence also includes keeping proper books and records, minutes of director and shareholder meetings, and having proper agreements in place, to name a
few.  Agreements should include those with outside companies, and especially those with the owners or related companies, if applicable.

The law goes far to protect business owners, but it has its limits.  It is incumbent upon you to protect yourself and your business.

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Piercing The Corporate Veil

One of the most attractive features of a corporate structure is limiting the personal liabity of the company’s shareholders (or members in a limited liability company).  But simply incorporating your business is not enough; it does not automatically protect you from your company’s creditors.

Generally a corporation’s creditors can’t sue its shareholders for their personal assets (limitied liability). However, in certain instances courts will allow the creditors to pierce the corporate veil and do exactly that.  For example, courts sometimes allow piercing the corporate veil in instances of fraud or similar wrongdoing, not allowing the shareholder to hide behind a false or flimsy corporate veil.

It is important to adhere to corporate formalities, and treat the corporation as a separate entity.  (You and the corporation are NOT one and the same.)  Properly document transactions between the corporation and its shareholders, officers and directors, and make sure the transactions are fair and reasonable and in accordance with applicable corporate law.

Though piercing the corporate veil is not terribly common, it is important to protect yourself against even the possibility of losing your limited liability.

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