Do not Read This... IF YOU ARE AN EMPLOYEE

Did the title of this article "grab" your attention ? Probably did!

By Olubunmi Ogunniyi, LL.B.

The reason the within article has been entitled as such is because this month's article is directed at business owners. I refer to the business owners as those who have the "intestinal fortitude" to take risks. To be more specific, I am referring to small business owners (small corporations) who have chosen not to take the path of "least resistance".

Recently, I had a client (a small business owner) whose matter was settled. Perhaps I should re-phrase that - the entity suing my client had no option but to settle.

The entity sued my client is one of the major hotel chains. My client was being sued personally with respect to a contract which was executed between the aforesaid major hotel chain and my client's corporation.

Sometimes, I have seen major corporations attempt to make the principal(s) of a small corporation responsible in cases where it appears that the contract is between the major corporation and the small corporation only. Typically, a small corporation will have no real assets but, the principal of such a small corporation may have assets... and here lies the rationale behind major corporations attempting to proceed in this manner.

It is trite law that, a company ,once legally incorporated must be treated like any other independent person, with rights and liabilities appropriate to itself. As such, the principal of such a company or corporation is a separate and distinct entity from the corporation. Further, as a director and officer of such a corporation, these directors and/or officers are immune from personal liability.

Of the principals, directors and/or officers of corporate entities to be made personally responsible for the acts of corporate entities, a separate actionable wrong must rise against such principals, directors and/or officers.

The term "lifting the corporate veil" refers to circumstances where efforts are being made to make the principals of corporate entities responsible for the obligations of the corporations. As noted above, circumstances where the principals of corporations are held to be personally liable for actions carried out under a corporate name are fact-specific.

It has been decided that those cases in which the corporate veil has been pierced, usually involve transactions where the use of the corporate structure was a sham from the outset or was an after thought to a deal which had gone sour.

So, if you are the principal of a small corporation and it appears that an attempt is being made to make you personally responsible for the obligations of your corporation, seek the advice of a lawyer as soon as practicable.

By Olubnmi Ogunniyi, LL.B (Hons),B.L., LL,M

Barrister Solicitor

E-mail: olu@ogunniyilawoffices.com