Business owners take note: operating under an unregistered trade name – sometimes referred to as “doing business as” (d/b/a) – can leave you open to personal liability. This may seem like Business Ownership 101, but a recent Maine Supreme Court case is a red flag to take this point seriously.

A quick look at Treadwell v. J.D. Construction Co.

In Treadwell v. J.D. Construction Co., a construction company owner, Jesse Derr, organized his corporation under the name “JCDER, Inc.”, but began using and entering contracts with customers under the names “J.D. Construction, Inc. ” “J.D. Construction” and “J.D. Construction Co., Inc.” none of which were registered with the Secretary of State.  A customer filed a lawsuit against Derr, individually, and his company for failing to complete their home building project in a workmanlike manner, requiring them to hire their own contractors to fix and finish the job. The Maine Supreme Court found Derr to be personally liable for over $10,000 in damages.

Why was Derr found personally liable?

• Because Derr never had JCDER, Inc. file a statement with the Secretary of State that his corporation would be using the name “J.D. Construction,” Derr could not claim that the contract was really with JCDER, Inc.
  
• Since “J.D. Construction” was not an actual corporation, Derr was considered a sole proprietor, simply using the name “J.D. Construction” individually.

How to protect yourself:

• The simplest and most secure way to avoid personal liability for a negotiated contract (whether a corporation or an LLC) is to register all names under which you are operating with the Secretary of State, no matter how slight the distinctions between names may be.
  
• Registered names provide evidence of the relationship between your corporation or LLC and the trade names or D/B/As under which you are operating. Operations conducted under those D/B/As should have liability protections, potentially protecting you and your business from a great deal of risk.

Next Steps:

Contact Preti Flaherty’s Business Law Group for corporate advice, or help with registering your D/B/As. For more information, visit our website at www.preti.com, or contact attorney Michael Sheehan at msheehan@preti.comor Kristy Smith at ksmith@preti.com.