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Just How
Good is Corporate Protection?
If
you ever have the misfortune of facing aggressive business
creditors, you might wonder how easily these business creditors could
become your personal creditors. The short answer is that your
Washington corporation offers you much protection from creditors,
more so than in many other states. The Washington Supreme Court
recognized the legitimacy of protecting an owner's assets with a
corporation when it said, "The purpose of a corporation is to
limit liability." This is good news for owners of corporations,
but owners should also be aware of situations that could compromise
their corporate shield.
In
a leading Washington case a small business owner's corporation and
the individual shareholders were sued by a person who lost her arm
operating a trim press manufactured by a corporation purchased by the
defendants. The multiple corporations owned by the same family made
the business organizations complicated, but the Washington Supreme
Court clearly set forth the two elements a claimant must prove to set
aside the corporate shield and proceed against the owner/shareholders:
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First,
the corporate form must be intentionally used to violate or evade a
corporate responsibility. This means fraud, misrepresentation, or
some form of manipulation of the corporation to the stockholder's
benefit and creditor's detriment.
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Second,
disregarding the corporate protection must be "necessary and
required to prevent unjustified loss to the injured party." The
court explained that the wrongful corporate activities must actually
cause the creditor's harm before the court will disregard the
corporate protection.
So,
the corporation is powerful protection, but it is not absolute. In
many cases judges have decided to allow corporate protection only
after meticulously reviewing the details of the operations of the
corporation. This may not be legally correct, but it happens.
You
can maximize your protection by forming an appropriate entity (a
corporation or limited liability company), and then making sure you
operate it as a separate and independent entity. This is sometimes
easier said than done, especially when you have multiple affiliated
corporations or LLCs owned by a single person or a small group. Work
with your professional advisors to make sure you are properly
operating your company in order to take advantage of the protective
corporate shield.
Efficiency
in Garnishment Procedures
Is
efficiency in garnishment an oxymoron? It usually is, unless you are
a collection agency. We have heard frustrations from clients who were
served with garnishment papers for judgments against their employees.
In cases like these, sometimes the employer calls an attorney to take
care of it or enlists a CPA to help. Either approach is usually
inefficient. In fact, a bookkeeper should be able to respond to
garnishment papers. We recognize that sometimes the business owner is
the primary bookkeeper and may have limited experience with
garnishment. We think we found the best published explanation of the
garnishment process: a handbook published by the Clark County Law
Library. The handbook is written primarily for the party initiating
the garnishment procedures, but it is helpful for understanding the
entire procedure if you are an employer on the receiving end of
garnishment papers.
The
handbook is copyrighted, so we cannot simply make it available to
you on our website. If you are, or expect to be, involved in
garnishment proceedings and would like a better understanding of the
process, you can send us a check for $40 and we will mail you a copy
of the handbook. Unfortunately, it is a bit difficult for individuals
to get the handbook directly because the law library accepts cash
only and is not easy to deal with.
If
you are an employer responding to garnishment, you should be able to
handle it in your office, especially with the guidance of the
handbook. On the other hand, if you have a claim for money owed to
you or your business and you are trying to recover those debts, you
may contact us for help with the debt collection. We can give you
advice on how to proceed, or we can represent you and take direct
action against the debtor.
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