SECRETARY OF STATE CAVEAT

The Oregon Secretary of State is a great resource for the small business owner. The website provides information and forms on a host of business-related topics. However, most businesses do not know that the Secretary of State Oregon Corporation Division provides strictly administrative services. A lot of businesses are in potential legal hot water because they have filed Articles of Incorporation or Organization and now think they have a legally recognized entity that will provide the limited liability they expect to protect them.

Unfortunately, there is more to setting a proper entity. Oregon law requires corporations to have bylaws and annual minutes. To prevent piercing the corporate veil (see below for definition), a corporation should also have organizational minutes, stock subscriptions and a federal tax ID. LLC's should have an operating agreement and a federal tax ID. This applies to one of the factors below -- Failure to observe corporate formalities in terms of behavior and documentation.

Though not indicated by the Secretary of State Oregon Corporation Division, piercing the corporate veil describes a legal decision where a shareholder, director of a corporation or a manager or member of an LLC is held liable for the debts or liabilities of the corporation or LLC. They are held liable despite the general principle that shareholders and members are immune from suits in contract or tort that otherwise would hold only the corporation or LLC liable. This doctrine is also known as "disregarding the corporate entity". Other factors that courts consider are:

Absence or inaccuracy of corporate records;
Concealment or misrepresentation of members;
Failure to maintain arm's length relationships with related entities;
Failure to observe corporate formalities in terms of behavior and documentation;
Intermingling of assets of the corporation and of the shareholder;
Non-functioning corporate officers and/or directors;
Significant undercapitalization of the business entity (capitalization requirements vary based on industry, location, and specific company circumstances);
Siphoning of corporate funds by the dominant shareholder(s);
Treatment by an individual of the assets of corporation as his/her own;
Was the corporation being used as a "façade" for dominant shareholder(s) personal dealings

It is important to note that not all of these factors need to be met in order for the court to pierce the corporate veil. Further, some courts might find that one factor is so compelling in a particular case that it will find the shareholders personally liable.

If you are a business owner interested in legal advice as it pertains to the Secretary of State Oregon Corporations Division, don't hesitate to call Levinson Law to discuss further your factors regarding the Secretary of State Caveat.

Call 503.222.9057 or contact us online today.

Located in Portland, Oregon.

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