- Piercing The Corporate Veil Single Member Llc
- Piercing The Corporate Veil Llc
- Piercing The Corporate Veil Michigan
'Piercing the corporate veil' refers to a situation in which courts put aside limited liability and hold a corporation's shareholders or directors personally liable for the corporation’s actions or debts. Veil piercing is most common in close corporations. Piercing the corporate veil. Proving that a corporation exists merely as a completely controlled front (alter ego) for an individual or management group, so that in a lawsuit the individual defendants can be held responsible (liable) for damages for actions of the corporation.
One of the biggest advantages enjoyed by business corporations is that the shareholders of a corporation benefit from broad protection against being held personally responsible for the debts and liabilities of the corporation. That is, creditors may reach the corporation's assets but, once those assets are exhausted, under normal circumstances they cannot also reach the personal assets of the owners or shareholders of the corporation to satisfy the corporation's debts.Under some circumstances, those to whom the corporation owes money or is otherwise liable will attempt to pierce the corporate veil, a legal term that describes a legal action that asks a court to disregard the corporate form for purposes of the litigation. If the court agrees, the corporation's shareholders and officers may be subject to personal liability, and the personal assets of the shareholders can be reached.An action to pierce the corporate veil most often arises in civil litigation when the corporation is believed to have inadequate assets to cover its liabilities, and the plaintiff alleges that the corporation is actually a sham - that is, the corporation is not really a distinct individual, but is merely an extension or alter ego of its shareholders, being used to advance their private interests or to perpetrate a fraud. Factors Considered in Piercing the VeilGenerally, when evaluating if a corporation is in fact legitimate or if the corporate veil should be pierced, courts look at the following factors:Or were the procedures not followed:.Corporate Formalities: Did the corporation follow proper procedure. Sham Corporations and FraudA court may also pierce the corporate veil to prevent a fraud, where the corporation is found to be a sham, created to facilitate fraud against third parties.If the corporation was set up, for example, to shield its owners from liability over a fraudulent real estate deal, and the owners siphon out the corporate assets such that the corporation is unable to compensate the victims of the fraud, a court is likely to set aside the corporation and allow the victims to recover from the personal assets of the owners. Corporate Alter EgosSometimes a business will operate through multiple affiliated corporations.
Piercing The Corporate Veil Single Member Llc
Piercing the LLC VeilA Limited Liability Company (LLC) has a similar purpose to a corporation, allowing the principals to engage in business activity while reducing their potential personal liability. Copyright © 2004 Aaron Larson, All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder. If you use a quotation, excerpt or paraphrase of this article, except as otherwise authorized in writing by the author of the article you must cite this article as a source for your work and include a link back to the original article from any online materials that incorporate or are derived from the content of this article.This article was last reviewed or amended on Apr 10, 2018.
Piercing The Corporate Veil Llc
50% of piercing the veil court cases nationwide succeed because owners are failing to properly follow corporate formalities. This exposes business owners to personal liability – meaning they can loose their possessions. What is the Corporate Veil?By properly forming a corporation, LLC or Limited Partnership (LP) and taking the steps required of corporate formalities, a corporate veil is raised that may protect shareholders, officers and directors from personal liability and provide tax benefits. However, to ensure that the corporate veil remains intact and business meets its potential, all persons involved in the corporation must follow certain corporate formalities. ( While we refer to corporations in this article, the concepts and issues apply to LLCs and LPs as well. Don’t be misled by those who claim that the need for following formalities only applies to corporations.)If you fail to follow the requirements of corporate formalities, you could be vulnerable to court decisions which pierce the corporate veil. Monotype garamond free font download. Today, 50% of piercing the veil court cases succeed because owners are failing to properly follow corporate formality requirements.
Definition of Piercing the Corporate VeilDefinition: Piercing the Corporate Veil: A situation in which courts put aside limited liability and hold a corporation’s shareholders or directors personally liable for the corporation’s actions or debts. Veil piercing is most common in close corporations. While the law varies by state, generally courts have a strong presumption against piercing the corporate veil, and will only do so if there has been misconduct like abuse of the corporate form (e.g. Intermingling of personal and corporate assets) or undercapatitalization at the time of incorporation. (Undercapatitalization would apply if the corporation never had enough funds to operate, and was not really a separate entity that could stand on its own).If corporate formalities such as annual corporate filings and meeting minutes are not maintained in a timely and proper manner, courts can hold YOU, the entity’s owner, personally responsible for claims filed against the company. You need to keep your corporation filings current, and your legal protections intact.How to Prevent Piercing the Corporate VeilLimited liability and tax benefits are not a right granted to every business person, but privileges earned by following corporate formalities. Garrett Sutton is a corporate attorney, asset protection expert and best selling author of 10 books.
Piercing The Corporate Veil Michigan
He has sold more than 850,000 books to guide entrepreneurs and investors.For more than 30 years, Garrett Sutton has run his practice assisting others in protecting assets and maximizing financial goals. The companies he founded, Corporate Direct and Sutton Law Center, have helped more than 10,000 clients protect assets and incorporate businesses. Garrett is a member of the elite group of “Rich Dad Advisors” for bestselling author Robert Kiyosaki.