ENT 630 – Co-written with Essence Walton
Why is it important to consider the implications of veil piercing in the planning stages of an organization; and how can a company maintain the “corporate veil?”
Veil piercing can be detrimental to the owners, stockholders, and employees of a business entity. For this reason, it is imperative for entrepreneurs to examine the consequences of such occurrences before launching a new venture. In doing so, the risk of future lawsuits can be minimized. Once a business has been established, there are ways to avoid veil piercing. According to Matthew A. Griffith, Senior Attorney, Griffith Law Group LLC , “Maintaining the corporate veil is not difficult, but it does require business owners to complete some simple tasks and stay vigilant;” and, those tasks include, but are not limited to:
- “Never commingle personal and corporate finances.
- Create and maintain a company record book, which should include minutes of all company meetings.
- Learn and follow any requirements unique to the state where your business operates.” (Griffith, 2017)
To read Griffith’s full article, click here.
Is an exit strategy needed? How does an owner’s exit strategy affect the decisions they make regarding their business?
Not all business owners create an exit strategy; however, it is important to have one in place when looking for investors. An exit strategy shows an investor how they can get a return on their investment. From the time an owner sets an exit strategy, the decisions they make are usually in alignment with this choice. For example, selecting a legal structure is done in the early stages of a startup. An owner with plans to remain in complete control of their business may prefer a sole proprietorship or limited partnership versus forms that are heavily regulated by the state like a corporation. Although an exit plan is subject to change as businesses grow, it is easier for an owner to change from particular structures to another such as switching from a corporation to a sole proprietorship. To avoid these complexities, it is highly recommended that owners develop an exit plan as soon as possible and get legal advice when doing so.
Referring once again to Noam Wasserman’s trade-off theory, if a business owner prefers to maximize their wealth rather than their control this will even influence their decisions on cofounders, investors, whom they hire, whether or not they will have a successor and other factors (Wasserman, 2013). Owners more interested in keeping their control will be less likely to hire people who are specialists in their fields so that they can do all of the decision makings. So to recap, an exit strategy is not necessary but is recommended because it influences the choices an owner will make regarding their business as they aim to reach their goals.
For a video synopsis of Wasserman’s book, click here.
Griffith, M. A. (2017, July 17). A Checklist for Maintaining Your Corporate Veil. Retrieved November 24, 2018, from https://www.legalzoom.com/articles/a-checklist-for-maintaining-your-corporate-veil
Wasserman, N. (2013). The Founders Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton Univ Pr.