Failure to maintain your corporate books and records can render you personally liable

The equitable theory of veil piercing, intended to serve as a rectifying mechanism against certain fraud, dishonesty or wrongdoing, is of particular import in the case where the corporate entity has no assets to pay a judgment but the principals do have assets to pay the legal damages awarded by a court. This was recently used by Burberry is its effort to stop a counterfeiter and recover $2.5 million in damages.. Burberry Limited and Burberry USA v. RTC Fashion Inc., d/b/a Designers Imports t/a Fashion58.Com and Asher Horowitz (Index No. 110615/14) (N.Y. Sup. Ct. 2014).

Burberry, believing that an affiliate of the judgment debtor intended to frustrate Burberry’s efforts to collect the $2.5 million judgment against Designers Imports and to ensure that Horowitz maintained continuity in the marketplace, commenced an action in the New York State Supreme Court against both the affiliate RTC Fashion and principal Horowitz. In the state court action, Burberry sought to pierce Designers Imports’ corporate veil in order to hold Horowitz personally liable for the judgment entered in the federal action. Under New York state law, and it is well established in New York that piercing the corporate veil generally “requires a showing that the individual defendants (1) exercised complete dominion and control over the corporation, and (2) used such dominion and control to commit a fraud or wrong against the plaintiff which resulted in injury.” Courts in New York have considered the following factors in determining whether the two-part showing has been met and the corporate veil may be pierced: (i) failure to adhere to corporate formalities; (ii) inadequate capitalization; (iii) commingling of assets; and (iv) use of corporate funds for personal use.

The following facts were important to piercing the corporate veil (there were other facts considered by the court): The principal was the sole shareholder, officer and director of both companies; (2) the corporate entity had no by-laws, no stock transfer ledger, no minutes of its shareholders meetings, and no minutes of its board of directors meetings; (3) the principal’s only meetings were with his accountant on a yearly basis for the purpose of preparing his tax returns; (4) the principal comingled funds by paying personal expenses with company money for his personal use.

The take-away is that is important to properly keep corporate books and records. Don’t forget to do your annual meeting minutes and properly document other major corporate transactions. Failure to do so may result in personal liability and not receiving the protections of the corporate entity.

Bill to open access to adoptee records

Advocates are trying to get a bill written that would give New York adoptees access to their original birth certificates. The bill would also include provisions for:

  • allowing biological parents to file update medical information in case the adopted child seeks it
  • allowing biological parents to choose whether they want to be contacted or not, and if so, directly or through an intermediary agency

Other proposals include allowing biological parents to (like Illinois’ new law) redact their name or requiring a judge to final good cause before access is granted. Similar laws were recently enacted in New Jersey and Connecticut. Most advocates believe that New York’s mutual consent registry is inadequate and rarely productive.

There is a controversy over whether adoptive parents should expect lifelong anonymity. Some argue the closed records policy was to protect the child and the adoptive family, not the relinquishing biological parent. Many argue that the stigma and shame of years past is no longer a social issue that demands secrecy. Access to health information is a greater right in the balance between parent and child.

Bills have been proposed several times over the past two decades but none have been successful. With the growth of personalized medicine, access to medical record and genetic information can be increasingly important.

Detection of Embezzlement by Your Employees

 business often owners rely on their bookkeepers to take care of financial matters. This is especially so where restaurant owners are chefs in the kitchen, leaving them less time to focus on the administrative aspects of the business. However, the business owner is legally responsible for oversight of all aspects of the business, especially financial matters. The sad news is that much of the problem is caused by family members who are trusted and not subject to any checks and balances in the accounting system.

A periodic review of the business books and records can reveal signs of trouble before they bankrupt your business. There are a number of warning signs of employee or partner embezzlement. Some general indicators may include:

  • Missing Documents
  • Delayed bank deposits
  • Holes in accounting records
  • A large drop in profits
  • A jump in business with one particular customer
  • Customers complaining about double billing
  • Repeated duplicate payments
  • Numerous outstanding checks or bills
  • Disparity between accounts payable and receivable
  • Disappearance of petty cash

Other employee warning signs:

  • The employee goes out of the way to work overtime
  • The employee spending more lavishly than salary might indicate
  • The employee has the same address as a vendor

If you suspect embezzlement, you should consult an accountant to confirm your findings. You may also consult your attorney for your options to address any malfeasance  and your insurance agent to identify any coverage you may have for the losses.

Enabling You to Unlock Your Mobile Device

The DCMA prohibits software manipulation to circumvent electronic security measures. Congress temporarily exempted wireless mobile devices from the anti-circumventions prohibitions to allow consumers to “unlock” the mobile device to change carriers. The exemption ended in January 2013 and strictly speaking, unlocking mobile devices is currently illegal under the DMCA. The Unlocking Technology Act of 2013 would amend this section of the DMCA (Section 1201) and allow consumers to unlock their personally owned devices and would protect those people and companies that develop and distribute the software that facilitates unlocking.

Recent Reads

Interaction to transaction: How to Get Comfortable When Asking for the Sale by Nancy Roberts  addresses the social, cultural and behavioral patterns that affect women in the role of a salesperson. Understanding why women are adverse to the notion of sales is the key to overcoming the obstacles and taking action to beat the odds. Nancy Roberts promises you won’t hate sales after you read her book. I agree, you won’t. This book does a great job adjusting our perception and attitude about sales. It is worth the price and the few hours it takes to read it. Give up one evening to read this and you will have a whole new understanding and approach to selling your product or service.