Typically, a corporation’s owners, managers and employees are not personally liable for the debts and obligations of the company. As with every rule, there are exceptions to the corporate liability shield rule. One such exception is known as “piercing the corporate veil.” Courts will disregard the corporate shield and hold individuals liable for corporate debts if they abuse the corporate form by using the corporation as a mere conduit for their individual interests. Normally, piercing the corporate veil is no easy task because it is viewed as an extreme remedy and the aggrieved party must prove the abuse by clear and convincing evidence. That said, recently, a court did not hesitate to pierce the veil.
In a recent case, the defendants convinced the plaintiffs to lend money to a corporation. The defendants stated that a portion of the company’s revenues would be donated to charities. In fact, the defendants used the money for their personal interests, including the purchase of a recreational vehicle that was titled in the name of one of the defendants, individually. In addition, the defendants failed to separate business and personal funds, create any degree of formal corporate structure, or observe any other corporate formalities. The trial court ultimately concluded that the corporation was merely a facade for the defendants’ personal gain and held the defendants personally liable for repayment of the loan.
Although the corporate form provides a liability shield, courts are quite prepared to pierce the shield and hold individuals personally responsible for corporate debts when justice demands. Please feel free to contact me for more examples of veil piercing or this recent case, Longmuir v. Kickin’ It, Inc.
Barry F. Gartenberg, L.L.C.
Attorney at Law
505 Morris Avenue, Suite 102
Springfield, New Jersey 07081
DISCLAIMER: This BLOG post is provided solely for the general interest of the reader. It is not legal advice or opinion. Legal advice and opinion are provided by the firm only upon engagement with respect to specific factual situations.