This is common in the marine industry. In fact, boat owners frequently create separate and distinct legal entities for each vessel or business enterprise they operate. While one company may be perceived to be the owner and operator of multiple vessels, often those individual vessels are owned by separate entities that are legally independent from the “parent” company and the business owner.
The establishment of a corporation or LLC can have tremendous advantages, the most obvious is the protection it affords the owner from the debts and/or liabilities of the business. For example, if a vessel is involved in an accident or the company operating it can’t satisfy its debts, the persons owning the vessel or company generally can’t be held personally liable.
However, the key to the successful establishment and maintenance of a business entity as a shield against personal liability is strict adherence to separating your personal actions and activities from those of the company. It is critical that a business owner maintain books, bank accounts, etc., that are separate from the corporation or LLC. When the assets and operations of an individual are co-mingled with those of his or her company, the distinction between the owner and the company can become blurred. This can have the devastating effect of exposing the owner to debts and liabilities that would otherwise be limited to the company.
Creditors can file suit to “pierce the corporate veil” to go after an individual’s assets to satisfy the liabilities of a corporate entity when it is merely an alter ego of the individual.
Compliance with corporate formalities, such as abiding by company by-laws, sufficiently funding and staffing a business for its legitimate operations and hosting meaningful annual meetings, are the best measures for maintaining the true independence of a corporate entity.
This will ensure that an owner is not personally exposed to liabilities of his or her business enterprise.