Piercing the Corporate Veil: How to Avoid Personal Liability in Business

Here’s a look at what JD Supra lawyers are writing about how to avoid personal liability in the way you run your business. These overview articles introduce some of the best practices to avoid personal liability in business – and touch upon topics such “piercing the corporate veil” among others:

Protect Your Business Structure and Avoid Piercing the Corporate Veil (by Jon Florin):

“…just having a corporation or LLC does not mean that the owners’ personal assets are continually protected. Business owners must comply with specific requirements in order to remain protected under that corporate or LLC status. Otherwise, their limited liability may be lost, which is known as “piercing the corporate veil.” Small business owners should understand the direness of this situation and work…” Includes list of corporate requirements. Read on»

Piercing the Corporate Veil (by W. Jeffrey Brown):

“The precise circumstances which can result in a piercing of the corporate veil will vary depending upon current state law, and the particular facts in the case. Generally, when evaluating if a corporation is in fact legitimate, or if the corporate veil should be pierced, courts look at the following factors: 1. commingling funds, 2. corporate formalities, 3. fraud…” Read on»

Piercing the Corporate Veil: Limitations to Liability Protection (by Jeffrey Harrington):

“In the aftermath of recent scandals (e.g. Enron, Anderson Consulting), the law has shifted somewhat to make it easier for plaintiffs to “pierce the corporate veil.” That term, also known as “disregarding the corporate fiction,” refers to the situation where the court allows the plaintiff to reach the personal assets of the defendant owner(s) rather than limiting the plaintiff to recourse against the corporate assets. Similarly, under the same principle, it may also be possible for plaintiffs to reach the assets of other corporations belonging to the defendant owner…” Read on»

9 Ways to Keep Your Corporate Liability Protection Intact (by Donna Seyle):

“When you form a corporation, limited liability company, or similar business entity, a ‘corporate veil’ is created between your personal assets and your business. What most people either don’t know or don’t take seriously, however, is that you must do more than simply form the corporate entity and register it with the state. The entity must be properly managed to avoid the risks of personal loss…” Read on»

10 Business Resolutions to Make So You Avoid A Legal Crisis (by Robin M. Gronsky):

“1. I will have written contracts. Written contracts, even if you are doing business with people you consider friends or family, are key to ensuring that there are no hard feelings about what was expected, how much it would cost, how long it would take or what happens if something goes wrong. Never do business on an “understanding” or a handshake…” Read on»

Starting a Business? Hope Is Not An Option (by Linda Cummings):

“When it comes to starting and running a business, ignoring legal risks and hoping that nothing bad will happen is not a plan. There is just too much that can go wrong.  Knowing what your business liability risks are and managing those risks should free you to move forward with developing and growing your business with realistic hope, not nagging worries…” Read on»

Limiting Personal Liability (by Ibrahim Moiz):

“…it is important that members and shareholders must observe certain formalities with regard to both the internal operations and external appearances of the business. Failure to observe such formalities may make the shareholders or members vulnerable to the claims of creditors or potential plaintiffs who seek to ‘pierce the corporate veil.’ This can be done by claiming that the business, its shareholders or members are simply ‘alter egos; of one another thus making the individuals responsible for the debts, obligations or liabilities of the corporation or LLC…” Read on»

Related legal writings on the topic:

Is There Now a Federal “Veil Piercing” Standard? (by Corporate Law Advisers):

“A recent ruling on a motion to dismiss by the Federal District Court for the District of Delaware raises some very difficult questions about the strength of the “corporate veil” in cases where the plaintiff seeks recovery under a federal statute. In fact, the court may have opened Pandora’s box, particularly since so many corporations are incorporated in Delaware and are therefore subject to the jurisdiction of courts in Delaware. The case is Blair et al. v. Infineon Tech. A.G., Civ. No. 09-295 (SLR), 2010 WL 2608959 (D. Del. June 29, 2010)…” Read on»

Commission Siphoning Supports Corporate Veil Piercing (by Katten Muchin):

“The U.S. Court of Appeals for the Second Circuit affirmed a bench trial verdict in a breach of contract case, holding that the district court properly ‘pierced the corporate veil’ and imposed liability on a defendant corporation under an ‘alter ego’ theory. Plaintiffs sued two corporate defendants, Private Label Sourcing, LLC and Second Skin, LLC, for breach of garment contracts, arguing that the two entities were jointly and severally liable as alter egos of one another…” Read on»

Despite Failure of Trustee’s Arguments, Debtor’s Principal Personally Liable (by Duane Morris):

“In the case of In re LMcD LLC, the U.S. Bankruptcy Court for the Middle District of Pennsylvania found members of a closely held limited liability company liable for the LLC’s debts. Although the trustee of the Chapter 7 bankruptcy estate argued liability based on multiple theories, including veil piercing, reverse veil piercing, single entity and quantum meruit, these theories were all dismissed by the court…” Read on»

Alter Ego/Piercing the Corporate Veil – Trial Brief (by Brown McHam & Associates):

“My clients were sued and an attempt was made by the plaintiff to convince the court that my individual client (ie the actual person) was one and the same as one or both of the companies that were sued. This brief was prepared as a trial brief to give the judge our view on the plaintiff’s veil piercing in this case as well as summarize much of the relevant law on corporate veil piercing…” Read on»