The Legal Defenses Of Businesses

How to make sure your corporation gives you liability protection

Piercing The Corporate Veil

One of the advantages of a corporation is that the owners have limited liability. A corporation is a distinct legal entity, separate from its owners. The separation between the owners and the corporation is sometimes called the “corporate veil.” Because of the corporate veil, owners in the corporation are not personally liable for the financial obligations of the corporation, and the most that an owner can lose is the money that was invested in the corporation.

However, corporation owners must be careful. If not, there may be times when the corporate veil can be “pierced,” causing the owner of a corporation to become personally liable for corporate liabilities. For example, if owners do not follow corporate formalities, there is a greater chance that the corporate veil will be pierced and the owners will be exposed to personal liability for corporate obligations. Corporate formalities that must be followed include Board of Director meetings, votes on major issues, keeping of corporate minutes, and filing annual reports. Commingling corporate and personal funds will also put the corporate veil at risk. Consulting a good Mesa Arizona business attorney will reveal that if money flows back and forth between the owner and the corporation, those cash flows must be documented and justifiable. Using the corporate account to pay personal bills, for example, is a dangerous action that could be seen as a sign that the corporation and owner are one. If the corporation and the owner are found to be one, the owner can be liable for corporate liabilities.

There are additional ways in which the corporate veil can be pierced. Owners of a corporation should take precautions to ensure that they are not personally at risk for the liabilities of the corporation. For business owners, an experienced business attorney can be consulted to assess the potential risks and determine what steps need to be taken to guarantee that the corporate veil is not pierced. For those who are contracting with a business, or are owed money by a defunct business, an experienced business attorney can advise on strategies for possibly piercing the corporate veil and reaching the owner’s assets.