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.
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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