It is not uncommon to see a corporation whose president is the sole shareholder. Sometimes the president will refer to the corporation as “my company.” Whenever the company does something, the president will personalize it. For example, instead of saying “In 2002, XYZ corporation (or we) acquired ABC corporation ” the president/sole shareholder will say, “I bought ABC in 2002.”
This failure to recognize the distinction between the individual and corporation can come back to haunt both the company and the shareholder. Individual shareholders are given a shield of immunity from corporate misdeeds because the corporation is supposed to be a separate entity with a mind of its own. A chronic failure by the sole shareholder to separate the corporation and the shareholder can lead the courts to take away the immunity.
Sometimes corporate lawyers fall into the same trap. In the recent Hamilton County Appeals case, Torbeck v. Industrial Manufacturing Company , 2015-Ohio-3041, the lawyers for Torbeck Industries, Inc. also represented the principal shareholder, Richard Torbeck in a lawsuit. The corporation brought five causes of action against a number of defendants. The shareholder joined the corporation in two of the causes of action.
The Court found in favor of the corporation on three causes, but did not award damages. The other two counts, which were the counts that both the corporation and the shareholder brought, were dismissed. Plaintiff’ ‘counsel argued that if the defendants were liable there surely must be some damages awarded. Plaintiffs’ counsel filed an appeal.
The problem was, the notice of appeal said, “Notice is hereby given that Plaintiff Richard Torbeck appeals.” The Court of Appeals dismissed the appeal – the Corporation was the party who was denied damages. Richard Torbeck’s claims were dismissed. The wrong party appealed. The lesson is: it is important to always to recognize the distinction between the corporation and the individual who owns it.