Halloween is supposed to be scary. Legal disputes shouldn’t be. But if you own a business, there’s one fear worth keeping in mind: personal liability. Many business owners assume that forming an LLC or corporation protects them from being personally sued. And most of the time, that’s true. But not always. When fraud is involved, courts can and do hold individual owners responsible.

We’ve seen it happen many times. What started as a standard contract case quickly shifted when it became clear that one side had overbilled for items that should have been included in the original contract. At first glance, you hope it’s just sloppy work. But when you dig into the numbers and find a pattern of inflated charges, it becomes clear it wasn’t an accident. When that happens, the corporate veil, meant to protect business owners, starts to come apart.

Fraud Is a Shortcut to Personal Liability

In general, the law respects business structures. If a corporation or LLC enters into a contract, the individual owners aren’t on the hook for the company’s debts or lawsuits. But fraud is different. When someone uses the company to commit fraud, courts can “pierce the corporate veil” and hold the individuals personally liable.

This isn’t just theory. In one example, the contractor’s conduct included inflating invoices, billing for items not delivered, and then misrepresenting facts once the issues were raised. That’s not carelessness, that’s fraud. And once you cross into that territory, courts in New York are more than willing to hold business owners personally accountable.

If you’re a business owner, this should be a wake-up call. Don’t assume you’re untouchable just because your business is incorporated. Ensure your company maintains accurate records and reviews its billing practices regularly. Most of all, avoid shortcuts. Fraud may give the illusion of short-term gain, but the long-term risk can be severe.

Maintain the Corporate Shield. Don’t Just Assume It Works

Even when fraud isn’t in play, the corporate veil can still be pierced if you don’t follow basic corporate formalities. That means keeping business and personal finances separate, maintaining proper records, and treating your company like a real business, not just a bank account or tax pass-through.

Many business owners get in trouble not because they intended to do anything wrong, but because they weren’t careful. Sloppy documentation, vague contracts, and loose billing practices can all create openings for claims of misconduct. And if fraud can be reasonably alleged, plaintiffs will often look to include individual owners in a lawsuit to increase pressure.

Running a business comes with enough real challenges. You don’t want to add personal liability to the mix just because of an avoidable mistake or, worse, a bad choice.

Don’t Let Legal Horror Stories Become Your Reality

If you’re not sure whether your contracts, invoices, or business practices could expose you to personal liability, it’s worth taking a closer look now. Rodriguez-McCloskey PLLC helps business owners understand where the risks are and how to avoid them, so you can stay focused on growing your company without any surprise scares. Contact us today.