Piercing the Corporate Veil

Forming a corporation or LLC isn’t just about structure—it’s your financial shield.

The “corporate veil” acts as a legal barrier, keeping your personal assets safe from business debts and lawsuits. This legal separation ensures that business debts and liabilities remain with the company, shielding the owners. However, if a court determines that a business is not being properly maintained as a separate entity, it can “pierce the corporate veil,” holding owners personally liable.

What is the Corporate Veil?

The corporate veil is the legal distinction between a business and its owners. This separation protects personal assets from business liabilities, as long as corporate formalities are followed and the business operates as a legitimate entity.

How Can the Corporate Veil Be Pierced?

Courts may pierce the corporate veil if business owners fail to maintain proper separation between themselves and their companies. Common reasons include:

• Failure to Maintain Corporate Formalities – Not keeping proper records, holding meetings, or following bylaws.
• Commingling of Funds – Mixing personal and business finances, such as using business accounts for personal expenses.
• Undercapitalization – Operating with insufficient funds to cover business obligations.
• Fraud or Misrepresentation – Using the company to deceive investors, creditors, or customers.
• Using the Business for Personal Gain – Treating company assets as personal property.

Protecting Your Corporate Veil

To maintain liability protection:

• Keep personal and business finances separate.
• Follow corporate formalities, such as keeping proper records.
• Ensure the business has adequate capital.
• Avoid personal guarantees on business debts.

The corporate veil is a critical safeguard, but it’s not absolute. By respecting corporate structure and acting ethically, business owners can protect themselves from personal liability.