What’s the Catch?
Piercing the Corporate Veil: In certain situations, courts can ignore the limited liability status of a company or LLC and hold its officers, directors, and shareholders or members personally liable for its debts. When this happens, it is called piercing the corporate veil.
Unfortunately, many people get bad advice. Too often, we receive calls from folks and the conversations go like this:
I just got sued, but they can’t do that, I’m incorporated! Can they?
It really depends.
But my CPA told me as long as I’m incorporated I can’t be sued.
That’s not entirely true. Can you send me your corporate records?
What do you mean?
Your articles of incorporation, bylaws/operating agreement, statement of information, minutes, stock certificates.
I don’t know if I have those.
Avoiding a Legal Mess
Don’t let this be you. CPAs and attorneys can be great resources, but if you own or have interest in a business, you need to speak to an attorney who specializes in these issues. Better yet, have an attorney incorporate your business so that you can rest assured that it’s done the right way, the very first time.
Be mindful that simply because your business has taken the trouble to incorporate does not automatically or fully protect you from liability related to the company. It depends on the following factors:
Absence of Corporate Records
Fraudulent Representation by Corporate Shareholders or Directors
Use of the Corporation to Promote Fraud, Injustice, or Illegal Activities
Payment by the Corporation of Individual Obligations
Commingling of Assets and Affairs
Failure to Observe Required Corporate Formalities
Other Shareholder Acts or Conduct Ignoring, Controlling, or Manipulating the Corporate Form
While courts may be reluctant to “pierce the corporate veil,” it happens a lot, especially when people do not understand all the corporate formalities that come with a business.
Contact one of our attorneys today to discuss how we can help ensure that your business is incorporated correctly and shields you from any unneeded liability. It is worth the call now rather than waiting until you get sued.
“An ounce of prevention is worth a pound of cure.”