Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Hiding Behind Corporations

Posted by taxguru on July 31, 2003

As I’ve constantly described, using a C corporation is the best way for most people to minimize their tax burden.

Another big benefit of corporations is their ability to give some protection from the ever increasing number of frivolous lawsuits. However, some people think that using a corporation automatically gives them complete immunity from any legal attacks for their actions. That is not the case. Your personal actions will be your personal responsibility with or without a corporation. There are constant stories about doctors who screw up, such as cutting off the wrong leg or removing the wrong kidney. Many doctors are incorporated. It would be a travesty of justice to allow them to hide from the consequences of their actions by forcing the damaged parties to sue their corporations.

What corporations are great at is shielding you and your personally owned assets from the legal consequences of other people and of property. If you have employees or co-owners, using a corporation will allow you to be protected from legal actions caused by their acts. They will be sued, as will the corporation. However, unless you were also personally involved in the activity that caused the injury, your personal assets should be safe.

Likewise, if someone slips and falls on property owned by your corporation, they will have to pursue litigation against the corporation and you should be safe on a personal level.

What brought this issue up is the latest news on the Harrison Abstract collapse. Dian Brown, the owner, who has allegedly admitted improperly taking money out of the company accounts, and her attorneys, are trying to hide behind the corporate shield from litigation. This is ludicrous and will hopefully be laughed out of court. If she stole the money, that is as much a personal action, for which she will have to be personally accountable, as is a botched surgery by an incorporated physician.

As a side note on the investigation into the extent of Dian Brown’s misuse of Harrison Abstract money, this is a text book case for the skills of an independent CPA firm with experience investigating frauds.

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