In the Pit and Piercing the Corporation Veil

By Elizabeth A. Whitman

Recently, I saw a flyer for an upcoming performance of George Gershwin’s Porgy and Bess, a remarkable opera based upon DuBose Heyward’s[1] 1925 novel, Porgy.  Porgy and Bess was at the time of its first performance, extremely progressive, as it featured a cast consisting entirely of classically-trained African-American singers though it was considered by others to be racist.

In his will Gershwin stated that the opera was to be performed only by an entirely black cast, which may be seen as a desire to provide opportunities for talented singers who traditionally have been underrepresented in opera[2]  Nevertheless, the controversy surrounding Porgy and Bess continued until Houston Opera managed in 1976 to assemble a cast of classically-trained African-American performers from around the US who were willing to perform in the opera.

The report of an upcoming performance brought back fond memories, as I was fortunate to be among the violinists in the pit orchestra for more than a dozen sell-out performances of Porgy and Bess with an African-American cast at Indiana University in 1980. Those performances drew an audience from as far as New York City, as Metropolitan Opera would not undertake a performance Porgy and Bess with the required all-black cast for five more years.[3]

Playing in a pit orchestra is very different from performing in an orchestra on stage. For the uninitiated, an orchestra pit is located in between the front row of chairs and the stage. Typically, the orchestra pit floor is at least 4-5 feet lower than the floor of the seating area, usually sunk low enough that only the top of the conductor’s head is visible to those on the stage. Frequently, the pit will be even lower so that it is entered from and extends below the stage so the winds and percussion typically will be sitting under the stage

Orchestra pits are notoriously cramped quarters and sometimes loud acoustics (imagine trumpets and percussion playing in closed quarters). Further, because the orchestra pit is in effect in the basement and is not lit during the performance (musicians use small stand lights to read the music), the audience cannot see what the musicians are doing.  As a result, it is not unusual for wind players and percussionists, who may have lengthy rest periods, to read books, knit, work on their reeds, or otherwise quietly entertain themselves while their colleagues in the violin and other sections perform pretty much continuously.

These conditions, a need for pit space for staging, and improved technology have brought with them an even stranger, phenomenon — pit musicians who are not even in the orchestra pit during the performance. Rather, they perform in another part of the theater, taking cues by a live-stream of the vocalists and having their performances piped in real-time back into the theater all but instantaneously.[4] If it was difficult for the audience to tell who was performing the music with a traditional pit orchestra, it may well be impossible for the uninitiated to tell the difference between a live, “remote pit orchestra” and piped-in music.

Corporations and limited liability companies (which I will refer to collectively as a company) can be like a pit orchestra. Depending upon how they are set up, it may or may not be obvious who is behind them. What is referred to as a “corporate veil” protects the shareholders, manager, and members of a company from undesired personal liability for company obligations.  The corporate veil also separates what may be unknown owners from obligations that the company has assumed.

Sometimes, however, a company’s creditors may be able to lift, pass through or “pierce” the corporate veil to impose liability on the company’s owners. Typically, this occurs where business owners have failed to observe the separateness of the company from the owners.

Piercing of the corporate veil can occur with single member limited liability companies or single-shareholder corporations where the owners fail to separate company assets from their own. Other times, the corporate veil may be pierced where the company’s owners have removed assets from the company or have committed fraud or other wrongful acts.

Nevertheless, since protection of the owners from liability is the reason for setting up a business in corporate or limited liability company format to begin with, it is important that all companies take steps to assure that protection remains intact. A clear delineation between the company and related parties can go a long way in preventing creditors from piercing the corporate veil and pursuing claims against the company’s owner(s) and affiliate(s). A company can minimize the likelihood of someone piercing the corporate veil through careful business operations, including the following:

  1. Start out with adequate capitalization so that the company can support its needs. If additional capital is needed, obtain it through well-documented loans or formal capital contributions from the owners.
  2. Work with the company’s attorney to assure not only that appropriate by-laws or operating agreements are in place, but that appropriate corporate governance, such as minute books, stock ledgers, board meetings, corporate resolutions, and other business formalities, are observed on an ongoing basis.
  3. Hold the business out to others as a separate company, with separate letterhead, business cards, contracts, and leases.
  4. Assure that the company’s assets are not comingled with those of the owners or any other business. Open a separate bank account for the business and make sure that company revenues and expenses are deposited into and paid from that bank account. Do not use that bank account to pay the owners’ personal bills. Rather, make distributions to the owners and have the owners pay their personal expenses from their personal bank accounts.
  5. Do not make distributions to owners if that would result in the company being unable to pay its obligations. This can result in a claim for fraudulent conveyance.
  6. If an affiliate’s employees are expected to perform services for the company, have the company’s attorney prepare written contract that describes the services and the amount to be paid for them. Make sure the contract is honored and the bills are actually paid.

Corporations and limited liability companies are formed because their owners wish to limit their liability for business obligations. However, forming the company is just the beginning.   Retaining that limited liability requires the guidance of an experienced business attorney, good legal documentation, and careful business operations on an ongoing basis.


1]  OPERA GEEK FACTS: Deboise Heyward was an early 20th century American author from South Carolina and is most famous for his novel, Porgy, which was set in the African-American community in Charleston. Together with his wife, Dorothy, a playwright he met at an artists’ colony, adapted Porgy to a play called Porgy and Bess, which formed the basis of the opera by the same name. Although Heyward was the descendant of a signer of the US Declaration of Independence who was a South Carolina plantation owner, many of his writings centered around the Gullah people of South Carolina’s low country. Heyward was recognized posthumously by the My Hero Project, which seeks to use “media, art and technology to celebrate the best of humanity, one story at a time.”

[2]  The opera has been performed, with some controversy by all white casts in Europe, as noted by Alexandra Ivanoff in “Porgy and Bess” with a White Cast Stirs Controversy, New York Times January 30, 2018.

[3] George Gershwin reportedly turned down a commission to have Metropolitan Opera perform Porgy and Bess in 1935, because it would have been done in blackface.

[4] See  Patrick Healy, To Clear Space, a Pit Orchestra in the Basement, New York Times March 23, 2012.

©2018 by Elizabeth A. Whitman

For more information, please contact Elizabeth A. Whitman at (301) 664-7713 or

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.

How Choosing a Musical Instrument to Play is Like Selecting a Structure for Your Business

By Elizabeth A. Whitman

Recently, a mom in one of my social media groups submitted a post asking for advice about the best musical instrument for her children to learn. I posted a reply saying that there is no one best instrument, but rather, the instrument must meet child’s interests and needs.

Today, a rite of passage for many fourth graders it to choose a musical instrument to play. Children learn about three major instrument groups – strings, brass, and woodwinds, each of which has within it several options suitable for elementary school students, including violin, viola, and cello for the string instruments, trumpet, trombone, and baritone for the brass instruments, and flute, clarinet, and perhaps, saxophone, in the woodwinds.

Each group of instruments and each instrument, itself, has benefits and detriments. In the end, the decision should be made by finding the instrument which provides the best fit for the student and his/her physique and of course, interest. For instance, it can be difficult for a child to play certain wind instruments unless he or she has a certain number of adult teeth. And, although string instruments now come in a variety of sizes, most wind instruments do not, making the larger instruments, such as trombone and baritone, unwieldy for a small child.[1]

Likewise, the student’s goals should be considered when selecting the instrument. Cello would not be a good choice for a child who wants to play in the high school marching band, and saxophone or trumpet would be better choices than flute or baritone for a child who wants to play in jazz band.

New business owners face a similar dilemma in selecting the type of structure to use when forming the business. There are four main business structures:

  1. Sole proprietorship, a business which has a single owner and has not formed a business entity;
  2. Partnership, a business which has more than one owner and has not formed a business entity. The partnership may or may not have a written partnership agreement. For instance, two spouses who form a business together usually are a partnership, even if they do not enter into a partnership agreement;
  3. Limited Liability Company (LLC), which can have any number of owners and is formed by filing paperwork with the state. Limited liability companies; and
  4. Corporation, which also can have any number of owners and is formed by filing paperwork with the state. Corporations must have boards of directors and officers, so they usually operate more formally than limited liability companies; although that does not have to be the case.

As with musical instruments, there are options within each group. For corporations, there is the decision whether to be taxed as a C corporation or an S corporation.[2]  For partnerships, there are general partnerships and limited partnerships.  Finally, limited liability companies, there can be member-managed or manager-managed LLCs, and there is the possibility of electing to tax an LLC as if it were a corporation.  Further, there are decisions to be made about owner rights, including whether there will be both preferred and common equity, who will make major decisions, buy-sell rights, and how profits and losses will be allocated.

Important factors in deciding which of the four primary structures include:

A.  Who the Business Owner Expects to Be the Current and Future Members and How Involved They Will Be In the Business Operations. Although any business structure can accommodate owners who all are actively involved in the business, a corporation or limited liability company may work best where many of the owners are investors who will not be involved in the daily business operations.

B.  Desire for Protection from Personal Liability for Business Obligations. Owners of a sole proprietorship or partnership have full, personal liability for all business obligations. Owners of a limited liability company or corporation generally will have liability for business obligations beyond their capital contributions only if they sign personal guarantees. Liability protection is a major reason why small business may choose to operate as a limited liability company or corporation.

C.  Tax Issues. With a sole proprietorship or partnership, the owners usually can expect to pay income taxes at the regular rates on all business income. Further, if structured as a sole proprietor or single member limited liability company, the owners actively work for the business, and he or she may have to pay self-employment taxes on all of the business income.

Limited liability companies with multiple members and partnerships usually will be taxed as partnerships. If so, owners can expect to pay income taxes at the regular rates on all business income, but they might be able to structure the payments from the business so that they do not pay self-employment taxes on all of their income.

Although owners of corporations can arrange to receive part of their money as dividends so that they do not pay FICA on it, such dividends will still be subject to what is known as “double taxation.” This means that the corporation pays taxes on the income, and then, the owners will pay taxes on the same income again when they receive it from the corporation as dividends.  This is why many corporations make what is known as a “Subchapter S election” to become S corporations, which results in the tax structure looking more like a partnership.  However, there are limitations on who can own shares of an S corporation.

Finally, on the tax issue, in the Tax Cut and Jobs Act passed in December 2017, there is the potential for a 20% deduction for businesses that operate as pass-throughs (which generally is anything except a corporation which is not an S corporation), which can provide a significant tax savings for some businesses. I discussed this in my previous blog, “A String Quartet, a Nothing Special Diner, and a Famous Chef Diner take a Random Walk through the New Section 199A Pass-Through Deduction.”

Although it may cost some money up front, this is a complicated area, and everyone considering forming a business should consult with a business attorney and the accountant who will handle the business’ accounting before setting up the business structure. That is the best way for a business owner to assure that the structure will meet both the business’ current and future needs.


[1] Pitch for a string depends on a relationship between string length and thickness.  However, on a wind instrument, any particular note requires a certain length column of air which can’t be changed. That is why child-sized string instruments can exist, but you’re not likely to see a child-sized tuba. Flutes are an exception, as they are made in a “child-sized” version by bending the long tube into a U shape. Rarely-seen alto flutes also are in a U shape.

[2]  Clients frequently come to me asking that I form an S corporation for them. Under state corporations law, both S corporations and C corporations are the same types of entities – a for-profit corporation (sometimes called a stock corporation). The S corporation/C corporation distinction is a distinction under tax law.  By default, a corporation will be a C corporation under federal and state tax law, but by making a timely election for S corporation treatment, the corporation can be taxed as a pass-through, S corporation.

© 2018 by Elizabeth A. Whitman

For more information, please contact Elizabeth A. Whitman at (301) 664-7713 or

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.