What is Piercing the Corporate Veil?

One of the main reasons why many individuals choose to incorporate or to form an LLC is to limit their personal liability for business debts and obligations. However, there are cases in which a party may pursue an owner’s personal assets and income for company debt. A South Carolina corporate attorney can help ensure that a corporation is set up properly to reduce the personal liability of the owners.

What is Meant by Piercing the Corporate Veil?

An owner, member, or another party may voluntarily sign a personal guarantee to be responsible for a specific business debt. In this instance, the person agrees that if the company does not pay the debt, he or she will guarantee payment of the debt. The party owed the debt can take available legal action to collect the debt from anyone who signed a personal guarantee.

However, absent a personal guarantee, owners, shareholders, and members of an LLC or corporation are typically not liable for business debts or causes of action. A party who is owed a debt or has a cause of action against the company is limited in its pursuit of the debt to the company’s resources and property. The company’s “veil” is the legal separation between the owners and the company.

When a party is permitted to hold a corporation or LLC’s members, owners, or shareholders personally responsible for obligations or debts of the business, it is called “piercing the corporate veil.” The legal separation between the owners and the company is removed, allowing a party to pursue legal action against the owners for business debts and obligations.

Reasons Why the Corporate Veil May be Pierced

If a corporation or LLC is set up properly, it is difficult to pierce the corporate veil. Courts do not allow creditors and other parties to pierce the veil except under specific circumstances.

The three most common reasons for piercing the corporate veil are when the owners of the corporation or LLC do not maintain separation between company and personal assets or maintain the formalities required for an LLC or corporation; fraud, and undercapitalization.

Failing to Maintain Separation and Corporate Formalities

For instance, an owner may commingle income in a joint account instead of using separate accounts for business income and personal income. The owner may title business property in his or her personal name or vice versa. An owner may also neglect to file required state or federal annual reports, maintain corporate ledgers and books, hold annual meetings, or update bylaws as necessary.

Fraud and Wrongdoing

If the owners commit fraud, misuse company assets, or commit other wrongdoing that benefits the company over the public good, courts may allow parties to pierce the corporate veil. Fraud may include making misrepresentations to investors or creditors to obtain loans and capital. Wrongdoing may include acts that intentionally or willfully place parties at risk of harm or injury.

Undercapitalization

Undercapitalization occurs when owners purposefully fail to ensure that the company has sufficient capital to cover operating expenses. It could occur when shareholders or owners take larger distributions than they should, thereby placing the company at risk of not having funds to pay its debts. It could also include owners or shareholders intentionally reducing their initial investment, thereby placing a higher degree of risk on lenders if the company fails.

Contact a South Carolina Corporate Attorney for More Information

Losing the protection of the corporate veil can be costly for owners, members, and shareholders. Personal lawsuits can be costly to defend, even if you prevail. A South Carolina corporate attorney can provide guidance and legal counsel to help you avoid this situation and defend your company and yourself if a party file an action to pierce the corporate veil. Contact Willcox, Buyck & Williams, PA to learn more about protecting yourself from liability.

Is South Carolina Business Friendly?

Deciding what state to form your business is one that should be given careful consideration. This decision can impact your businesses from day one, on. For residents of South Carolina, forming your business in South Carolina may seem the natural choice. For residents of other states, South Carolina may not even come to mind. However, South Carolina is one of the most business-friendly states in the nation. As seasoned business lawyers in South Carolina, we can attest to the friendliness of South Carolina’s business landscape. Here’s why.

 

South Carolina Consistently Ranks in the Top 5 Business-Friendly States

 

According to Area Development, South Carolina repeatedly makes the top-5 list for its business-friendly environment. But, what makes a state business-friendly? Factors that are taken into account include:

  1. Overall Cost of Doing Business – this category takes into account things like corporate taxation, labor environment, incentive programs, access to capital, regulatory environment, and utility rates.

  2. Corporate Tax Environment – a major subset of the overall cost of doing business, South Carolina maintains committed to reducing taxes for businesses.

  3. Business Incentive ProgramsSouth Carolina leads the nation in business incentive programs, including reducing corporate taxes, job development credits, workforce development incentives, and multiple grants options that are customizable to specific company needs. 

  4. Access to Capital & Project Funding – When it comes to access to capital, South Carolina falls short, but the state makes up for this deficiency in other areas to assist companies in succeeding regardless. 

  5. Competitive Labor Environment & Workforce Development – South Carolina maintains a strong technical college system that produces a high volume of production-oriented workers each year. That, combined with the lowest unionized labor rates in the country make SC an attractive state for employers. 

  6. Shovel-Ready Sites Program – SC ranks #4 in the nation for shovel-ready sites, which are often deal-makers for developers and other land-intensive companies.

  7. Cooperative & Responsive Government – SC ranks #2 in this category, with one of the most responsive governments when it comes to corporate needs. SC is committed to easing the location and expansion process for businesses, as well as offering assistance to local governments to improve local development programs.

  8. Favorable Regulatory Environment – Again, SC ranks #4 for regulations favorable to companies, including reduction in red tape, favorable workers’ compensation laws and favorable legal rulings. 

  9. Utility Rates – South Carolina’s industrial power rates are 9% lower than those in other states, helping them come in at #5 in this category. 


South Carolina also offers a decent cost of living, combined with a temperate environment that encourages an active lifestyle.

Choosing Your Company’s Home

When it comes to deciding where to bring or start your business, there are many things to consider. Working with an experienced South Carolina business attorney can make the decision easier. If you’re considering staring a business, contact Willcox, Buyck & Williams, PA to learn the facts about the South Carolina business environment.

Types of Business Organizations – Advantages and Disadvantages

There are several different types of business organizations that you may choose from when setting up your business.  Each business entity has certain advantages and disadvantages that may make one entity preferable over other entities based on your specific circumstances. Our South Carolina business formation lawyers review the four most common types of business entities in this article and some of the pros and cons of each business structure.

 The Sole Proprietorship


Single, small business owners often choose this type of business organization. It is not a legal entity separate from the business owner. In most cases, it is a fictitious name that someone does business under, such as Tim’s Plumbing Service. The name is just a trade name instead of a legal entity.

 
Advantages of a sole proprietorship include:

  • Easiest, simplest, and least costly business entity to form and operate.
  • Complete control and flexibility.
  • You can register your name, obtain a business license, and begin conducting business.
  • The business does not pay separate taxes. All income passes directly to the owner and is taxed at the owner’s personal tax rate.

Disadvantages of a sole proprietorship include: 

The main disadvantage of a sole proprietorship is that the owner has unlimited personal liability for all business debt.  If the business is sued, the owner is personally liable. Therefore, the owner’s personal assets could be in jeopardy. Another disadvantage is that when the owner dies, the business terminates or becomes defunct.

A Partnership


A partnership is a separate legal entity created by two or more individuals who engage in business for profit. Partnerships are not difficult to set up and operate, but to protect each partner, a comprehensive partnership agreement should define each person’s interest, liability, and role within the partnership.


Advantages of a partnership include:

  • Limited partnerships and limited liability partnerships offer some degree of liability protection for partners. 
  • Partnerships are easy to maintain because they do not require annual meetings or minutes of meetings.
  • Partnerships do not pay corporate taxes. The profits and losses pass through the business to each partner, according to the partner’s interest in the business.
  • Can be used by professionals who may not be able to create an LLC.

Disadvantages of a partnership include: 

Individual partners may bear the liability for the actions of other partners.

  • Partners may have unlimited personal liability for debts and losses, except in the case of limited liability partnerships and limited partnerships.
  • If a partnership is created without a written agreement or a partnership agreement is poorly drafted, there could be significant disputes that may lead to costly litigation.

The Limited Liability Company

A limited liability company (LLC) is a legal business entity that is separate and apart from its owners (members). LLCs combine some of the best advantages of a partnership with the advantages of a corporation. Each state passes laws that govern the creation and operation of an LLC.


Advantages of an LLC include: 

  • LLCs may choose to be taxed as a sole proprietorship (pass-through entity) or a partnership. 
  • Owners have limited liability. They are not liable for the company’s obligations or debts.
  • LLCs are relatively easy to set up through the state’s Secretary of State’s Office. Members are not required to conduct annual meetings and have very few ongoing formalities or corporate filings with the state.
  • LLCs offer a great deal of flexibility in how the LLC is managed.
  • LLCs can be converted to a corporation if the company outgrows the limitations of an LLC.
  • You may create a single-member LLC or create an LLC with multiple members.

Disadvantages of an LLC include: 

  • LLCs are typically not suitable for companies that want to seek venture capital or pursue an initial public offering in the future.
  • Some professional groups may not be permitted to operate an LLC.
  • Transferring an interest or accepting new members can be difficult, depending on the terms of the operating agreement.
  • Members may be held liable for company obligations in some cases. 

 

The Corporation


A corporation is the most formal business entity. It is a legal entity that is separate from its owners (shareholders). In the eyes of the law, a corporation is a legal person. The shareholders elect a Board of Directors to operate the corporation. The directors, in turn, appoint officers to manage the day-to-day operations and make high-level decisions for the company.


Advantages of a corporation include: 

  • Corporations have an unlimited life span. Shares may be transferred, purchased, and sold.
  • Owners are protected from personal liability for the company’s obligations and debts.
  • Corporations have several options for raising capital. 
  • Corporations are the preferred business entity for public companies.

Disadvantages of a corporation include: 

  • Corporations are subject to double taxation. A corporation must file a corporate tax return and pay taxes based on its profits based on the corporate tax rate. Distributions to shareholders are taxed at the shareholder’s personal tax rate.
  • Setting up and managing a corporation is more difficult and expensive. Corporations require annual meetings, minutes of meetings, and other formalities.
  • The periodic filings and annual fees for corporations can be burdensome and costly for some businesses.
  • Much less flexibility because of regulations governing corporations.


Consult a South Carolina Business Formation Attorney

Choosing a business entity is a crucial decision. These pros and cons are not an exhaustive list of the reasons why you may or may not want to choose a specific business entity. Consulting a South Carolina business formation attorney before choosing your business form can help you avoid unnecessary costs and problems in the future. Schedule a consult with a member of our team at Willcox, Buyck & Williams, P.A. today.

Are Business Plans Still Relevant?

Sources seem to disagree about whether business plans are still relevant. Some industry professionals argue that a business plan is a key to success. However, other industry professionals argue that business plans are a waste of time and resources. If you are confused about a business plan, you are not alone. Our South Carolina business formation and planning attorneys believe that business planning is an essential element of successful business ventures. In the article below, we discuss some of the benefits of business plans and why they continue to be relevant.

Five Benefits of Developing a Business Plan


The benefits of a business plan are often realized through the “planning” more than writing down a plan. A business plan does not need to be a lengthy, complicated document to be beneficial. A lean business plan can also provide many of the same benefits, provided you invest the time it takes to develop the plan.
Five advantages of developing a business plan are:


1. Setting Priorities


It is impossible to do everything you need to do for success and growth at one time. This fact is true for start-ups and established businesses. A business plan allows you to set priorities so that you can allocate resources and time based on a strategic plan.


2. Manage Expectations


A business plan allows you to track your expectations and progress. By reviewing your business plan on a regular basis, you can see what you expected and what actually happened. This information allows you to adjust your course and manage change more efficiently.


3. Helps Secure Funding


While some professionals believe business, plans are outdated and unnecessary, many investors and lenders still want to see a strong, comprehensive business plan before investing in a company. Your business plan provides a roadmap for your business, but it also contains all the reasons why an investor would want to support your business with its capital.


4. Defining Your Organizational Structure


Developing a written business plan helps you define the roles and responsibilities of the owners, management staff, and employees. Defining these roles before you begin hiring employees can help you choose the right people for the job.


5. Market Analysis


A key section of a business plan is the marketing strategy. The business must be able to attract customers and clients to make money. Researching the industry, competitors, and the target market provide information on trends that can significantly impact your business decisions. The research you conduct now to prepare this section of the business plan can make it easier and less costly to handle marketing issues in the future.

Do You Need Help With a Business Plan?


A business plan allows you to be proactive instead of reactive. You develop focused strategies for every aspect of your business, so you are not constantly responding to emergencies and issues as they arise. 
Our South Carolina business attorneys assist companies of all sizes in developing business plans. Contact our South Carolina business formation and planning lawyers at Willcox, Buyck & Williams, P.A.  We can help you develop a plan for your start-up or a plan to help your business grow and expand.

Is It Time To Reassess Your Business Structure?

Choosing the legal structure of your company is a crucial step in beginning a business. Your business structure impacts numerous areas of your business. Risk, taxation, and complexity are three of the important factors to consider as you choose the business structure for your company.

Even if you consulted a South Carolina business organization lawyer when you organized and set up your business, it could be time to reassess your business structure. Changes in circumstances and the evolution of your business may make it necessary to change your business structure. Your initial business structure may have worked for you when you opened your business, but that does not mean that another structure is not necessary or better for your company now and in the future.

Common Reasons to Reassess Your Business Structure

There are a number of reasons why you may want to re-evaluate and change your business structure. Some of the common reasons include:

  • Liability and Risk Protection — Some legal business entities provide a higher level of personal liability protection. Many small businesses and family-owned business begin as sole proprietorships. Changing to another business structure can provide more protection for owners from personal liability for business debts and obligations.

  • Tax Considerations — Changing the structure of your business can make a substantial difference in the amount of taxes you pay. When you began your business, you may not have earned a large profit. As your business grows and increases revenues, you may need to change the business structure to lessen your tax burden.

  • Hiring Employees — The decision to hire employees has numerous implications for your business. The complexity and liability of your business changes as you hire employees. You may want to consider a different business structure that reduces your risk and can make dealing with various employee-related issues easier.

  • Change of Ownership or Management — If you purchase a business or you sell a portion of your business, you need to review the business structure. You may need to change the structure to meet your needs and goals after the change in ownership. Likewise, a change in management, such as retaining a business partner, may also require a change in business structure.

  • Business Growth and Financial Reasons — It is wonderful when your business outgrows its business structure. If your business has expanded operations or experienced a sudden and substantial increase in profitability, a change in business structure might be warranted.

  • Downsizing or Economic Downturn — As with a sudden increase in profits or business growth, an economic downturn or downsizing your business may require a change in the business structure. If your company is not handling the same level of business, you may want to choose a business structure that is not as complex to simply the requirements for operating the business.

Using a South Carolina Business Organization Lawyer To Change Business Structures

Schedule a consult with a member of our team at Willcox, Buyck & Williams, P.A. today. Our South Carolina business law lawyers can review your current business structure, your needs, and your goals to help you determine if you need to change your business structure. There are several legal issues that you need to consider before making any changes to the structure of your business. Let us help you ensure that you do not overlook any legal issue that could impact the change in business structure.