Corporate Veil Piercing

One of the primary reasons businesses choose to operate as corporations or limited liability companies is to insulate ownership from liability for the actions or debts of the company.

However, in certain situations, the courts will allow parties to “pierce the veil” of the corporate or LLC business structure to impose personal liability on some, or all, of its owners.

A court may ignore a business’s identity as a corporation or LLC and hold individual stakeholders liable when it finds that those who did business with the company were left with unpaid judgments or bills as the result of either the business operating as the alter ego of its owners or the company having acted in a wrongful or fraudulent manner.

Under the alter ego doctrine, when the owners of a corporation or LLC fail to maintain formal legal separation between their personal activities and those of their business, a court may find the business structure was a sham. Courts often invoke the alter ego doctrine after finding several of the following:

• Personal funds were intermingled with business funds;
• Failure to observe corporate formalities;
• Owners treating business assets as their own;
• Absence of business records;
• Non-payment of dividends;
• Lack of officers and directors; or
• The business was grossly under-capitalized.

Businesses that closely adhere to their corporate bylaws or LLC operating agreements are usually allowed to maintain their veil and shield their owners from personal responsibility for their companies’ liabilities.

The experienced attorneys at Thomas H. Curran Associates represent both business owners who are being personally sued for the liabilities of their corporation or LLC and creditors seeking to collect debts by piercing a company’s veil. Our attorneys can also provide guidance to corporations and LLCs seeking to ensure they are adhering to their corporate bylaws or operating agreements in a manner that will shield their owners from personal liability for the actions of the business.