Courts Continue to Pierce the Veil

Veil piercing Title On Legal Documents

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.

The case…

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.

Conclusion…

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.

PLEASE NOTE: This article is merely for the general interest of the reader. It is not legal advice or opinion and it does not create an attorney-client. Please call me at 973-921-0600 if you’d like to have a free initial telephone consultation or learn more about me or my practice. Thank you.