Corporations

Corporations have been a staple of the world economy since the Dutch India Trading Company was chartered in 1602. By that standard, limited liability companies (LLCs) are in their infancy, with most states in the U.S. having adopted their first LLC statues after 1988. Although increasingly more new businesses —especially small business and wholly-owned subsidiaries — are organized as LLCs, corporations are still a frequent and important form of business organization.

The most important attribute of a corporation is that it is a distinct entity, not an extension of its owner (like a sole proprietorship) or owners (like a partnership). Whether the corporation has one shareholder or millions of shareholders, it remains a distinct entity.

The second most important attribute of a corporation — only made possible by the fact it is a separate entity from its shareholders — is that a corporation is a limited liability entity. That means shareholders are not personally responsible for the obligations or liabilities of the corporation (at least not ordinarily, but more on that later). Without the attribute of limited liability, which is sometimes called a liability shield or corporate veil, publicly traded companies would not exist. Without corporations the world economy would be nearly unrecognizable, and it’s probably not an exaggeration to say that civilization itself would be vastly different.

As mentioned previously, the shareholders of a corporation are not ordinarily responsible for the obligations or liabilities of a company. The word “ordinarily” is an important qualifier, particularly for closely held companies. In certain circumstances when shareholders have disregarded or abused the corporate form, the courts will hold the shareholders personally liable for the obligations of the company. This is commonly known as “piercing the corporate veil,” and avoiding it requires business owners — small business owners in particular — to organize their business with intention and operate their business with care.

The corporate law team at Harshman Ponist are adept in the formalities associated with incorporation. We help business owners set up their corporations in ways that are not only compatible with their business models and processes, but that also prevent potential pitfalls which can lead to the piercing of the corporate veil.

Additionally, our experience allows us to help our clients avoid the types of shareholder disputes that can cripple small businesses. We believe it is important for corporations to have the appropriate mechanisms to deal with shareholder disputes before the business suffers irreparable harm. For example, having reasonable buy/sell agreements in place that allow a disgruntled shareholder to leave or for majority shareholders to remove an uncooperative shareholder. In cases where disputes over corporate control simply cannot be avoided, we represent our clients in resolving them, including the use of litigation when necessary.