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In a recent Tennessee Court of Appeals decision, the Court pierced the corporate veil and affirmed an award of damages, including punitive damages, against the corporation's sole shareholder. In Dog House Investments, LLC v. Teal Properties, Inc., et al., Defendant corporation was the Lessor of real property owned by Lessor's sole shareholder to the Plaintiff dog "camp." After the property was damaged in the 2011 Nashville flood, Lessor's sole shareholder refused to fix the building (as was required by the Lease) and pocketed the insurance proceeds that were supposed to be used for such repairs. Defendant corporation apparently had no assets, no purpose, and no operations other than to collect rent and distribute it to its sole shareholder.
A majority of American small businesses use the s-corporation form of doing business (i.e. dentists, opticians, and even retailers). The main reason is that an s-corporation is a pass-through entity, meaning the net earnings of the s-corporation are passed through to the shareholders of the company and reported on their individual income tax returns. This may seem simple enough for accounting principles but the tax ramifications can be substantial.
When forming a corporation, too many people simply visit the Secretary of State's website, or a form provider's website, download an inexpensive or free sample charter, and file it with the Secretary of State. Using such forms without careful consideration of the many variables that go into forming and operating a corporate entity, however, does a great disservice to you and your corporation.
Grant Konvalinka & Harrison, P.C., serves clients in Tennessee cities such as Chattanooga, Cleveland, East Ridge, Red Bank, Jasper, Collegedale, Athens, Decatur, Altamont, McMinnville, Manchester, Dunlap, Winchester, Fayetteville, Soddy-Daisy, Etowah, Dayton, Charleston, Tullahoma, Fort Oglethorpe, Dalton, Chatsworth, Calhoun, Summerville, Lafayette, Ringgold, Chattanooga Valley, Chickamauga, Tunnel Hill and Trenton.
Counties: Hamilton County, Bradley County, McMinn County, Sequatchie County, Grundy County, Franklin County, Coffee County, Warren County, Dade County, Catoosa County.