A cautionary tale about the consequences of disregarding the separateness of a corporate entity is told in the recent case of Christopher v. Sinyard out of Georgia. Here, a company created to construct personal residences promised to complete punch list items after the closing of a sale, and at closing one of the corporation’s officers executed a seller’s affidavit stating that the residence had been completed and that the work and materials were warranted for one year. Five days after the closing, the homeowner met with the builder to discuss the punch lists and the fact that subcontractors were threatening to place liens on the house. When the builder reviewed the punch lists with the homeowner, the builder stated that he could not help and drove away. According to the builder, there was no money left after the closing, and the work was not completed because “we were out of money.”

The homeowner sued and obtained a default judgment against the company and then sought to pierce the corporate veil and hold the officers of the company personally liable for the default judgment. The trial court pierced the corporate veil and held the officers personally liable in the face of evidence that the corporate officers had commingled corporate and personal properties and records; failed to observe corporate formalities; the corporation was under-capitalization; and fraud was committed at the closing by executing a seller’s affidavit the officers knew was false. The evidence also showed that the officers never signed bylaws, never issued stock certificates, never kept meeting minutes, never filed annual registrations after 2005, titled lots personally then transferred them at or near closing, the company did not have a physical location, transferred funds obtained during construction to the officers’ other businesses, made undocumented loans to the company, and paid the company’s creditors from their personal funds.

While the officers argued that it is common for small companies to disregard certain corporate formalities, the appellate court showed little sympathy. The Court of Appeals held that “if the individual who is the principal shareholder or owner of the corporation conducts his private and corporate business on an interchangeable or joint basis as if they were one, then he is without standing to complain when an injured party does the same. Under such circumstances, the court may disregard the corporate entity.”

Christopher v. Sinyard, 723 S.E.2d 78 (Ga. Ct. App. 2012).