The Separateness of a Corporation from Its Shareholders

                                           The Separateness of a Corporation from Its Shareholders

In a recent decision, the Kentucky Court of Appeals was called upon to address and apply the principle that a corporation is separate and distinct from its shareholders to the effect that the shareholders may not exercise the corporation’s rights. While no doubt the correct rule, as is the parallel rule that an LLC and its members are distinct from one another, the opinion is more muddled than it needed to be in describing the contract at issue and who were its parties. Still, by the end the story becomes clear. Pinski v. Levine, 2025 WL 2422598 (Ky. App. Aug. 22, 2025).

First, the cast of characters. Our plaintiff is Anne Pinski, a podiatrist. Next we have Robert Levine, also a podiatrist, who, in the course of this litigation would pass away and be thereafter represented by his executor, his widow Sharon Levine. Last there is Podiatric Physicians of Kentucky, PSC (PPK), a professional services corporation organized in Kentucky.

The contract at issue provided that Pinski would be brought out of the corporation for $205,000 paid in three unequal installments. The confusion that arises in the case is to who were the parties to that purchase agreement. It is described in the second paragraph of the opinion as “Pinski, Levine, and PPK entered into a stock purchase, separation, and general lease agreement.” The opinion goes on just thereafter to state “upon execution of the Agreement, Levine paid the first installment of $102,500.” Still later in the opinion it is recited that “Under the terms of the Agreement, Levine, individually, agreed to purchase Penske‘s shares of stock in PPK.” (2025 WL 2422598, *3), apparently to the effect of an exclusion of PPK from the transaction. But that is what seems to be the crux of the case.

After the agreement was entered into and the first payment had been made, Penske cash four checks against the PPK’s account in the total amount of $16,500; she had written these checks to herself before the execution date of the agreement by which her shares were bought out. In addition, it was alleged that she had taken with her certain office equipment. In response Levine offset $21,500 from the next installment paid to Pinski.  To which she took umbrage.

The trial court held that the offset was proper (see 2025 WL 2422598, *2), and this appeal followed. 

It is only at this point in the opinion that the actual terms of the agreement at issue come out, namely that Levine agreed to buy the PPK shares from Pinski, and that PKK was not an obligor under the agreement.

Under the terms of the Agreement, Levine, individually, agreed to purchase Pinski’s shares of stock in PPK for $205,000 and was to make three installment payments to Pinski. After making the first installment payment of $102,500, Levine did not make the full second installment payment of $50,000; rather, he subtracted or set off $21,500 from the amount owed in the second installment.

To justify the setoff, Levine claimed that in January 2012, Pinski wrote checks on the PPK checking account to herself without disclosing same and waited to cash the checks until after execution of the Agreement in March of 2012. These checks totaled $16,500. Levine also claimed that Pinski took an x-ray machine owned by PPK, which together with the checks totaled $21,500. 2025 WL 2422598, *3.

Which leads into a discussion of corporate separateness and that Pinski’s alleged wrongful acts against PPK were not against Levine.

PPK was a professional service corporation and was incorporated under KRS 274.015. As a professional service corporation, PPK was a separate legal entity from its shareholders. On this point, the law is clear that a corporation and its shareholder are not to be considered legally interchangeable but are separate and distinct legal entities. PPK was also a separate party to the Agreement.  Id. (citations omitted).

Which when applied to the facts yields:

It is uncontroverted that PPK owned the x-ray machine and that the checks were written on PPK’s checking account. As a result, PPK, not Levine, was the real party in interest to assert any claims against Pinski to recover PPK property or monies owed. Accordingly, Levine was not entitled to subtract or set off the $21,500 from the second installment payment owed by Levine, individually, under the Agreement. The circuit court committed reversible error for concluding otherwise.

And that is why Levine could not offset of his personal obligation to Pinski for the amount PPK was injured by Pinski.