IMPORTANCE OF USING THE FULL CORPORATE NAME
By Attorney Randall J. Andersen
December, 2012
By Attorney Randall J. Andersen
December, 2012
Disclaimer: The information contained on this page is not legal advice. The information provided on this website is for general informational purposes and is not necessarily updated to account for changes in the law. You should consult with an attorney for legal advice regarding your individual circumstances.
One of the advantages of conducting business through the use of a corporation or a limited liability company is that the shareholders (in the case of a corporation) and the members (in the case of an LLC) are ordinarily not personally liable for the debts, obligations and liabilities of the corporation or the LLC.
There are, of course, exceptions. Shareholders and members frequently are asked to sign personal guaranties. Shareholders and members are also normally responsible for their own negligent conduct, even if it occurs in the course of acting on behalf of the corporation or LLC. For example, attorneys, physicians, architects and engineers, normally cannot avoid personal responsibility for their own negligence by conducting business through a corporation or LLC. Personal liability can also arise if the shareholder or member fails to keep his personal financial affairs separate from the business or otherwise fails to observe corporate formalities.
Business owners can also become personally liable for the debts and obligations of the corporation or LLC if they fail to disclose to the persons with whom they do business that their business is organized as a corporation or LLC.
A good way to put the public on notice that you are conducting business as a corporation or LLC is to use the full legal name, including the “Inc.”, “LLC” or other designation indicating the entity is a corporation or LLC as was included as a part of the name when the corporation or LLC was organized with the Wisconsin Department of Financial Institutions. In the case of Benjamin Plumbing, Inc. v. Barnes, 162 Wis. 2d 837 (1991), the Wisconsin Supreme Court addressed the consequences of not using the full legal name. In Benjamin Plumbing, the Court held that a director of a corporation could be held personally liable for a contractual obligation of a corporation when the director entered into a contract on behalf of the corporation but failed to disclose that the business was incorporated. The Court held that the creditor was free to assume that the business was an unincorporated entity, and that the director was the owner and was personally responsible for the claim. The Court held that the creditor had no duty or obligation to investigate whether the business was in fact incorporated, and that the burden was on the director to disclose that the business for which he was contracting was in fact a corporation.
The lesson from the Benjamin Plumbing case is that when conducting business as a corporation or limited liability company, it is important to use the full legal name, including the words or letters at the end of the name which identify it as a corporation or limited liability company
There are, of course, exceptions. Shareholders and members frequently are asked to sign personal guaranties. Shareholders and members are also normally responsible for their own negligent conduct, even if it occurs in the course of acting on behalf of the corporation or LLC. For example, attorneys, physicians, architects and engineers, normally cannot avoid personal responsibility for their own negligence by conducting business through a corporation or LLC. Personal liability can also arise if the shareholder or member fails to keep his personal financial affairs separate from the business or otherwise fails to observe corporate formalities.
Business owners can also become personally liable for the debts and obligations of the corporation or LLC if they fail to disclose to the persons with whom they do business that their business is organized as a corporation or LLC.
A good way to put the public on notice that you are conducting business as a corporation or LLC is to use the full legal name, including the “Inc.”, “LLC” or other designation indicating the entity is a corporation or LLC as was included as a part of the name when the corporation or LLC was organized with the Wisconsin Department of Financial Institutions. In the case of Benjamin Plumbing, Inc. v. Barnes, 162 Wis. 2d 837 (1991), the Wisconsin Supreme Court addressed the consequences of not using the full legal name. In Benjamin Plumbing, the Court held that a director of a corporation could be held personally liable for a contractual obligation of a corporation when the director entered into a contract on behalf of the corporation but failed to disclose that the business was incorporated. The Court held that the creditor was free to assume that the business was an unincorporated entity, and that the director was the owner and was personally responsible for the claim. The Court held that the creditor had no duty or obligation to investigate whether the business was in fact incorporated, and that the burden was on the director to disclose that the business for which he was contracting was in fact a corporation.
The lesson from the Benjamin Plumbing case is that when conducting business as a corporation or limited liability company, it is important to use the full legal name, including the words or letters at the end of the name which identify it as a corporation or limited liability company