Pierce the Corporate Veil: What Does It Mean?

Pierce the Corporate Veil: What Does It Mean?

Workers’ Compensation Lawyer

Have you ever heard the term pierce the corporate veil? If you’re new to the business world, much of the terminology can be difficult to understand at first. The corporate veil is a simple concept, also known as a corporate shield. The corporate veil is a term that describes the separation of the owner and the corporation. Corporations and LLCs are set up so that the owners or members have protection from personal liability when it comes to debts or negligence claims.

What Is Piercing the Corporate Veil?

The pierce the corporate veil means that a court hold corporate shareholders or LLC owners personally liable for the liabilities of their corporation. Generally, shareholders and members are separate entities from the company and cannot be sued. There are situations, however, where piercing the corporate veil can happen.

Personal Liability Circumstances

There are a couple of instances where a court may hold shareholders responsible. These situations include fraud cases where the corporation is just a set up to carry on fraudulent deals. The second is when a corporate shareholder acts out in a way that puts corporate gain over public good.

Usually, the actions of members or shareholders that pierce the corporate veil are as follows:

  • Failing to keep corporate documentation
  • Using business assets for personal use
  • Co-mingling personal and business funds

If members or shareholders take part in this kind of activity, then they are more likely to be held liable in court. If a member dissolves the corporate veil, then the member’s actions are no longer separate. If a member acts willfully negligent and harms other people in the process, he or she may be legally liable.

Corporate Debt Circumstances

Sometimes a court will pierce the corporate veil for debt settlement. This doesn’t often happen, but it can in the following circumstances:

  • Payments made with personal and business credit cards
  • Documents signed by the owner personally
  • Personal guarantees on loan or uses personal collateral
  • Payroll taxes

While the corporate veil is important and one of the many factors that a business considers when becoming an LLC or a corporation, it is not fool-proof. The corporate veil can be pierced.

When it comes to running your corporation, it’s important that you follow the rules and keep your business separate from your personal finances. Remember that if you dissolve the corporate veil then you are personally liable for negligence and for your company’s debts. If you’re worried about being personally liable for a suit against your company, contact a corporate lawyer in Melbourne, FL today for more information!

 


 

Thanks to The Law Offices of Arcadier, Biggie & Wood for their insight into business law and piercing the corporate veil.

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