Contractors often rely on LLCs or other corporate entities to limit personal liability. But those protections aren’t absolute. When a company is misused—through underfunding, misrepresentation, or personal enrichment— a court may disregard the corporate form and hold individual principals personally liable under a legal doctrine called “piercing the corporate veil.”
A recent decision from Maine’s Business and Consumer Court shows just how that can happen in the construction world.
The Case: MJMM, LLC v. CABN Co. Ltd.
CABN Co. Ltd., a Canadian startup formed in 2021, marketed itself as a provider of state-of-the-art, sustainable, prefabricated housing, touting “intelligent building design” and “novel application of technology.” Despite these purported qualifications, the plaintiffs alleged that CABN misrepresented its experience and capabilities at the time of contracting.
They alleged that CABN:
- Missed key project deadlines;
- Left materials and equipment exposed to the elements;
- Failed to assemble equipment and materials, and
- Created unsafe site conditions.
The resulting damage was extensive, including warped walls, mold growth, water infiltration, and plastic decomposition. The plaintiffs also claimed CABN falsely reported progress to trigger payments.
The Legal Fallout
The plaintiffs sued both the company and its individual principals for fraud, misrepresentation, unjust enrichment, and violations of Maine’s consumer protection statutes. CABN’s principals asked the court to dismiss the claims against them personally, arguing that only the company could be liable.
The court disagreed, holding that at the pleadings stage allegations of fraud, undercapitalization, personal enrichment, and misuse of the corporate form were sufficient to preserve the possibility of individual liability.
Citing Cianchette v. Cianchette (2019 ME 87) and the Restatement (Second) of Torts § 530, the court reaffirmed that that misrepresentations made at the time of contract formation can sustain tort liability, and that a promise made without the intent to perform is actionable.
Why It Matters
This case is a strong reminder that forming an LLC or other corporate entity does not make you untouchable. Courts will look beyond the entity to the individual principal where there is evidence of fraud or abuse of the corporate structure.
And the risk isn’t limited to fraud. Although allegations of fraud it more likely that a court would subject the principal to personal liability, even in the absence of fraudulent actions, poor corporate practices can place principals at serious risk of being held personally liable.
Protect Yourself and Your Business
To keep corporate protections intact and minimize risk, contractors should:
- Properly capitalize their business from the start;
- Keep personal and company finances separate;
- Avoid exaggerating experience or capabilities during contract negotiations;
- Limit personal use of company assets;
- Avoid entering into transactions for personal gain.
Ignoring these practices can make it easier for a court to hold you personally responsible even if you thought you were acting on behalf of the business.
The Takeaway
Your company is only as strong as the way it is run, and contractors should not assume that forming a corporate entity will fully insulate them from personal liability. Sound corporate practices and observation of corporate formalities are essential to maintaining the protections that separate corporate entities are intended to provide.
Maggie Shields is an associate attorney in Bernstein Shur’s Construction Law practice group, where she represents owners, contractors, and other construction professionals in contract drafting, negotiation, and dispute resolution. Drawing on her background in commercial litigation and experience with Maine’s highest court, Maggie brings clarity, precision, and practical insight to every matter. The Construction group combines deep industry knowledge with a collaborative, solutions-oriented approach to help clients avoid disputes, resolve challenges efficiently, and keep their projects—and bottom lines—on track.