What Does It Take To Pierce The Corporate Veil?

New York has set a high bar for individuals seeking to “pierce the corporate veil,” which is by definition attempting to sue corporate officers or limited liability company owners directly for damages. Usually a corporation is treated as a separate legal person, but even a high bar cannot protect business owners from potential lawsuits.

The legal concept of corporate personhood usually tends to shield owners of limited liability companies and corporations from personal liability in case of a business loss.  However, sometimes an individual is so clearly using the corporation as a personal bank account that it may be possible for plaintiffs to sue the owner directly for fraud.

So, how do you protect yourself from a personal loss for business activities?

  • Keep formal records. Keeping corporate minutes and accounting for every dollar spent may seem tedious but it is a necessary part of running a corporation or limited liability company without running the risk of becoming personally liable.
  • Do not commingle personal and business assets. You and your corporation should be entirely separate legal entities.  If you have separate businesses, be sure never to transfer funds illegitimately from one business into another.
  • Make sure you have sufficient assets to cover debts and losses. Capitalization is something that courts consider when deciding whether or not to allow the plaintiff to pierce the corporate veil.

Posted in Civil Litigation

Tagged business litigation, commingle assets, corporate veil, corporation, LLC