THE CORPORATE VEIL

I have told the cats that if they want to travel back up to the San Juan Islands to visit their retired friend, the old Tom, that they will have to earn some money to pay for the gas.  They declare that they will earn the money by selling goods out of my retail store during their breaks.  I agree, but I have some concerns.  I don’t want to be liable for whatever scheme they have cooked up.  I know that they have been online looking at Chinese knock-offs of popular American products.  I suspect that they will mislabel the goods, and I don’t want them, or me, to be responsible for claims by angry customers who discover the swindle or for any legal action by the legitimate manufacturers.  I am also concerned about their not paying for goods ordered and taxes that they might “forget” to pay.

I suggest that they form a corporation, and that I sublease a portion of my store to their corporation.  They readily agree.  I set up the corporation with the cats as the sole officers, directors and shareholders.  They  ask me to prepare a sublease, which I deliver to them at dinner the next evening.  They say that they will get back to me within a few days, after they have had an opportunity to review the corporate documents and sublease with their attorneys in San Francisco.

Three weeks later their San Francisco law firm approves the documents, and the cats start their business.  Goods are ordered and placed on shelves, and the cats have their first customer, Bowser, who has come in for a new dog collar.  I overhear them tell Bowser that the Gucci leather collar is only $79.95 because they were able to purchase the entire canine inventory from a Gucci outlet in Atlanta that had to close.  I happen to know that the collar came out of a crate, along with other goods, shipped from Hong Kong.  They also tell him that because of the deep discount in price, they can only accept cash, which Bowser has to return home to get from you.

At this point I tell the cats that we need to have a talk.

“The corporation,” I tell them,  “will not protect you from fraud that you commit, or from certain taxes or from nonpayment of obligations that you guaranteed or incurred individually.”  The cats blink at each other. These rules seem intended to frustrate their plans. They decide to

complete the sale to Bowser and to return the remaining goods and close their business.  They will panhandle for the rest of the gas money.

Allen Drescher has practiced law in Ashland and Southern Oregon since 1973.  His practice areas include business law, real estate, estate planning and elder law.

© Allen Drescher