A cautionary tale about starting and running a business.
I am in my 70’s and finally sat on a jury. It was a 5 day business contract case about whether two friends who started a business were really partners or not and whether the Plaintiff was receiving a bonus or a share of profits. We also had to determine whether the LLC was an ‘alias’ for the Defendant. That was, did the Defendant treat the business as his own checking account, etc. Because, if they were separate entities he could transfer business assets to himself to avoid paying any judgement or vice versa.
The short story is that the Defendant was very loosey-goosey with his organization and we found that the Plaintiff was entitled to what he was seeking and granted him over $1 million dollars (half was owed to him and half was punitive damages. We determined the awards high enough but not so high as to put the guy out of business.
So we found that if you have an LLC and treat the company checkbook like your own, we could pierce the ‘corporate veil’ and find the owner liable as well as the company.
This guy bought two Porches, his he used to ‘drive back and forth to job sites where they were doing demolition work’. He bought and then sold gold coins worth $100,000 but couldn’t remember if he used company funds or his own or whether the money went back to the LLC or into his pocket and whether he filed the profit on his own tax returns or the LLC’s.
If you start a legal entity such as an LLC or create a partnership or similar, you should really understand the legalities behind what you have and how it operates. This friendship went south as the business got larger and they were working on a number of verbal understandings that should have been in writing. Even if you feel your partner is cheating, do not announce that other until you have facts and finally do not tell people that you are going to drag the case through the court system until the guy runs out of money.
So if you can’t define your business organization, a group of 12 strangers being paid less than minimum wage will do it for you. (I got $200 for 5 days work including mileage).