Peter Poolman is a contractor who installs in-ground swimming pools for homeowners. His company is called Poolman, Inc., and he is the President and sole shareholder of the corporation. He had begun construction on a pool at Tom Foley’s home, and then fails to complete the construction. Foley hires another contractor to complete the work at an additional cost of $6,000. During the discovery process of his suit against Poolman, Inc. he learns that the corporation did not maintain a separate bank account from Peter Poolman, that it failed to keep accurate corporate minutes, and that it neglected to file annual reports with the Secretary of State. While the corporation has only $2,000 in assets, Peter Poolman has a home with $75,000 in equity. What liability does Poolman, Inc. and

Question

Peter Poolman have individually for payment of Foley’s claim?

What will be an ideal response?

Answer 1

A corporation is liable for its own debts, taxes, and liabilities, and generally shareholders are protected from liability beyond the extent of their investment. Poolman, Inc. would be liable to the extent of its assets to Foley. However, because Poolman, Inc. failed to comply with the requirements of corporate governance, a court may “pierce the corporate veil” and hold shareholders individually liable for corporate obligations. Especially in closely held corporations, failure to keep corporate records and commingling of funds may expose shareholders to personal liability. Peter Poolman may be liable if the corporate veil is pierced. Foley can put an attachment against the real estate in his individual name and foreclose on any subsequent judgment lien.