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An entity set up and run properly CAN protect a sole shareholder/member

Sole control of a corporation, by itself, is insufficient to establish that the corporate veil should be pierced. To find that such a scheme creates an automatic right to pierce the corporate veil would virtually undue all small businesses functioning as LLCs or sub-chapter S corporations. The true issue is not dominion and control, but whether the shareholder was the “alter ego” of the corporation.

In Erb Poultry, Inc. v. CEME, LLC, the Court of Appeals for Montgomery County (October 10, 2014) held that the corporate veil should not be pierced even when the sole shareholder of a corporation issues stop payment orders on checks. Erb Poultry, Inc. v. CEME, LLC, 2014-Ohio-4504.

A corporation is a separate legal entity from its shareholders even where there is only one shareholder in the corporation. Zimmerman v. Eagle Mtge. Corp., 110 Ohio App.3d 762, 675 N.E.2d 480 (2d Dist. 1996). Therefore, shareholders, officers, and directors will generally not be held personally liable for the acts of a corporation. Charvat v. Farmers Ins. Columbus, Inc., 178 Ohio App.3d 118, 2008-Ohio-4353, 897 N.E.2d 167, ¶21 (10th Dist.). However, in certain circumstances, the corporate form may be disregarded and the corporate veil may be pierced. Belvedere Condominium Unit Owners’ Assn. v. RE. Roark Cos., Inc., 67 Ohio St.3d 274, 287, 617 N.E.2d 1075 (1993). In order to reach the personal assets of the corporation’s individual shareholders, the creditor must show that “(1) control over the corporation by those to be held liable was so complete that the corporation has no separate mind, will, or existence of its own, (2) control over the corporation by those to be held liable was exercised in such a manner as to commit fraud or an illegal act against the person seeking to disregard the corporate entity, and (3) injury or unjust loss resulted to the plaintiff from such control and wrong.” Id. at 289. The burden of proving these elements rested with Erb. Zimmerman at 772.

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