Occasionally we hear CPAs or attorneys referring to the Piercing of a corporate veil. What does that expression mean? Well, before talking about the piercing part, we should define what the “corporate veil” is in when protecting your business…
Corporations and Limited Liability Companies are formed to protect and shield the owners and their assets, by ensuring that the liabilities incurred while running a company are not impacting the personal properties of the entrepreneurs (real estate, personal accounts, other corporations, etc.) So, the “corporate veil” is the layer of protection that ensures an individual against lawsuits brought while running a business.
However, breaking through that veil (piercing it) is possible, if the entrepreneur operates in manners that are not considered lawful (example running a Ponzi scheme or conducting illegal activities). In that case the officers, directors, shareholders or members of a corporation or limited liability company could be found personally liable for the debts and liabilities of the corporation or LLC.
Even minor “offenses”, like not keeping up with the corporate minutes, or using corporate funds to pay for personal expenses might be enough to “break through” the corporate protection that corporations offer.
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The information contained in this blog – including information of a legal nature – is provided for informational purposes only, and should not be construed as legal advice on any subject matter.