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Michigan Court of Appeals Affirms Corporate Limited Liability Protections

Business Law

Under Michigan law, corporations and limited liability companies (LLCs) are treated as separate and distinct entities or “persons.” Shareholders, owners, and members are presumably not liable for business obligations as a general rule. This enables business shareholders, owners, and members to be free from personal liability for business obligations, liabilities, and debts. However, there is an exception to this rule known as “piercing the corporate veil.” “Piercing the corporate veil” of corporate limited liability sometimes occurs in Michigan business litigation. Under this exception, owners of a corporation or limited liability company can be found liable for the business’s obligations by failing to adhere to corporate formalities, fraud, or other wrongdoing, such that the corporation is a “mere instrumentality” or “alter ego” of the business owner.

In a recent Michigan business case, Estate of James Armour II v. Hall, (Mich. Ct. App. May 9, 2017), the Michigan Court of Appeals reaffirmed this legal separation between business owners and their corporations or limited liability companies. In this case, the plaintiff attempted to sue a business owner in Mason County, Michigan. The business owner’s limited liability company conducted business in Mason County, but the owner, personally, did not. The business owner was active in the operation of the business during some months of the year, but otherwise resided out-of-state. The Court ruled that since the defendant in his personal capacity did not himself conduct business in Mason County, and instead only conducted business on behalf of the limited liability company, there was no grounds to support venue in that County for the lawsuit against the business owner in his personal capacity.

This Michigan case reinforces the general rule of limited corporate liability that business owners are separate and distinct from their businesses. The Court stated that “a limited liability company is a separate legal entity” and that limited liability company members are “not ordinarily liable for the acts, debts, or obligations of the company.” The Court concluded that absent evidence that the business was a “mere instrumentality” or “alter ego” of the business owner, the Court would refuse to impose on the business owner a form of “vicarious venue” for business conduct. To evaluate the advantages of incorporating or re-organizing your business as a corporation or limited liability company, and to get assistance in protecting your business, please contact the business attorneys at Shinners & Cook, P.C.