Thoughts on construction law from Christopher G. Hill, Virginia construction lawyer, LEED AP, mediator, and member of the Virginia Legal Elite in Construction Law

Another Reason to Incorporate Your Construction Business

Map of Virginia highlighting Chesterfield County
Map of Virginia highlighting Chesterfield County (Photo credit: Wikipedia)

I have discussed on prior occasions reasons why construction contractors should incorporate if they had not already. While incorporation is not a total shield against all claims, particularly if a contractor is not careful in keeping up with corporate formalities, forming a corporation or an LLC can provide some liability protection for the owner’s personal assets in a manner that we construction attorneys love to see.

Recently, the Chesterfield County, VA Circuit Court pointed out how this relatively simple process can provide such protection. In Horne v. Eco-Logic Construction the Virginia court overturned a jury verdict that found in favor of the plaintiff homeowners and against the owner of Eco-Logic Construction, Mr. Howard. This jury finding was entered after a trial that only involved Mr. Howard himself (the other parties, including the owner of a second company Build A Custom Homes, had failed to answer). The judge reasoned that the evidence only showed a contract between the Hornes and the two corporate defendants, not the companies’ owners.

He also stated that a single check written directly to Mr. Howard was not enough to allow the Hornes to pierce the corporate veil and bypass the company and attack Mr. Howard’s personal assets. The Court stated that there was no evidence that the check to Mr. Howard benefited him directly as opposed to his company Eco-Logic. As a side note, counsel for the Hornes has noted their appeal to the Virginia Supreme Court so I will keep you posted should the high court weigh in.

The takeaway?

1. You should always incorporate your construction business. As this case shows, the Courts of Virginia make it very difficult to bypass a corporation or LLC and get to the personal assets of that company’s principal(s). Take advantage of that protection.

2. Attend to the distinction between you as an individual and your company in every possible way. The only link to Mr. Howard, as opposed to his company, in this matter was the check made out to him personally. Without this very minor (and understandable) failure to keep the company and himself separate, the plaintiffs would have had an even harder time making their case against him and likely the Court would not have allowed this to go to a jury.

In any event, I recommend this case as one that illustrates why construction entities operate as corporations or LLC’s.

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5 Responses to Another Reason to Incorporate Your Construction Business

  1. It is very important to make incorporate a construction business. I have learned this in business law during my university. In school, we were given various cases that involved various industries, and one industry that is usually overlooked is the construction industry especially if it involves small construction companies. I was lucky to have this kind of training in school, now that I am involved in construction law. My law professor was able to provide us various cases to train us on very difficult cases to minor ones. I am glad that the school was able to incorporate in the curriculum a module about construction law as well, and was able to practice my mind in dealing such cases.

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