On at least one occasion here at Construction Law Musings, I have discussed the need to operate your business as a corporation or LLC. The primary reason that I, as a construction attorney, recommend this is for the liability protection against attacks on your personal assets. Proper use of incorporation can and does protect your home and other personal assets from attack by creditors with a firewall of sorts that separates your business liabilities and assets from your personal ones.
However, the Henrico County, Virginia Circuit Court recently reminded us all why I italicized “proper” in the last sentence. In ACE Electric Co. Inc. v. Advance Technologies Inc., the Virginia court considered a lawsuit by ACE Electric against Advance, a defunct engineering firm, and the owner and principal of Advance, Erik Butler. The suit revolved around the improvement of boilers at the University of Richmond, here in my home town. The essential facts are that Mr. Butler assured ACE and the university that his company was well qualified to take on the project. As the project progressed it became abundantly clear that the assertions were untrue.
Under most circumstances, even in a case such as this where fraud could have been alleged, the claims against the principal of the company would not have worked out for the plaintiff. However, in a somewhat unusual decision, the Henrico, VA court found that, aside from failing to keep separate corporate and personal books and failing to maintain the “corporate formalities” required for the basic protections,
[I]t would work a profound injustice to allow Mr. Butler to escape liability for repaying this debt
