Need Help?

Please feel free to contact us. We will get back to you with 1-2 business days. Or just call us now.

+1 (571) 469-1075

Piercing the corporate veil

"Piercing the corporate veil" is a legal concept that occurs when a court disregards the separate legal identity of a corporation or limited liability company (LLC) and holds the shareholders or members personally liable for the company's actions or debts. It happens in situations where the court finds that the company's shareholders or members have abused the corporate structure, used it to perpetrate fraud, or failed to maintain appropriate separation between their personal affairs and the affairs of the company.

"Piercing the corporate veil" is typically invoked when an injustice or unfairness is caused by the corporate entity's misuse as a shield to avoid personal liability. If successful, it allows creditors or plaintiffs to go beyond the limited liability protection and hold the individuals behind the company personally responsible. 

The specific criteria and circumstances under which the corporate veil can be pierced vary between jurisdictions and depend on the applicable laws and court precedents. Courts generally consider factors such as undercapitalization, failure to follow corporate formalities, commingling of personal and corporate assets, and using the company for fraudulent purposes when determining whether to pierce the corporate veil.

To be more specific, for example, if a shareholder or member treats the company as an extension of their personal affairs, disregarding the separate identity of the business, courts may pierce the corporate veil. This can occur especially when a shareholder commingles personal and corporate funds, uses corporate assets for personal expenses, or fails to maintain proper corporate records and formalities, establishing an alter ego relationship.

Another example, as mentioned earlier, is when a company is used to perpetrate fraud, evade legal obligations, or engage in illegal activities. In such cases, courts may pierce the corporate veil and hold the individuals personally liable. This can happen if a shareholder uses the company to hide assets, engage in fraudulent transactions, or carry out illegal schemes.

It's important to note that piercing the corporate veil is an exceptional remedy, and courts apply it cautiously, considering the specific facts and circumstances of each case. The criteria for piercing the veil can vary, so it's always advisable to consult with legal professionals familiar with the laws of the relevant jurisdiction.

Want to talk to us ?

Please feel free to contact us. We're super happy to talk to you. Feel free to ask anything.

© Copyright 2023, All Right Reserved, TheFinanceZoom