by Nick Gromicko, CMI® and the InterNACHI® Legal Team
You did the smart thing. You formed an LLC or S-corporation for your inspection business because you know it can help protect your personal assets in the event of a lawsuit. Now what?
You must understand one thing: forming an LLC or S-corporation is not foolproof. A court may disregard the separateness of the entity under the doctrine known as “piercing the corporate veil.” A court may pierce the corporate veil if it finds that upholding the separateness of the entity would be unjust. (Read more about it at I formed a corporation or limited liability company. Now what?)
One key factor a court will look at is whether the client knew he was dealing with an entity, rather than you personally. That’s why it is critical that you make sure your business cards, website, marketing materials, and contract forms all show that you are doing business as an LLC or S-corporation. If you form XYZ Inspections, Inc., for your business, but your contract just has your name on it and no mention of your corporation, the client has no way of knowing that he is dealing with a separate entity, and a court will hold you personally liable every time.
In addition to making sure the client knows he is contracting with an entity and not you personally, consider giving yourself an appropriate title to emphasize that point. If you formed an S-corporation, you would normally refer to yourself as its president. If you formed an LLC, you could refer to yourself as the manager or president. In either case, you could use CEO, but be cautious about that because it could be construed as a representation that your entity has more than one officer when it does not. And if your inspection business is a one-person operation, a jury might feel that naming yourself the CEO was pretentious.
The bottom line is that you should make sure your clients know that you're doing business as an LLC or corporate entity, and make sure they know it BEFORE you do the inspection. If a client thinks he is contracting with you personally--because that’s what your written agreement says--you can’t change that after the fact.