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Piercing The Corporate Veil Is No Piece Of Cake

How easy is it to pierce the corporate veil and seek damages from an individual who is an officer/director/member of his company? It needs to be examined on a case-by-case basis under the specific laws of the jurisdiction in which the issue arises. But it is never an easy task.

The key is often determining whether an individual is providing services strictly through the company or corporation, or doing so separately. Additionally, individuals can sometimes unknowingly put themselves on the hook for potential liability by expressly or impliedly guaranteeing services or the quality of same.

The broadest protection for individuals is often provided by the Limited Liability Company, which is typically governed by an Operating Agreement or the laws of the state under which the LLC was incorporated. An LLC is viewed as a form of legal entity that has attributes of both a corporation and partnership, but is not characterized as either under the given law.

As one court has stated, “[n]either the members of the limited liability company nor any managers of the limited liability company are personally liable to satisfy any judgment, decree, or order of a court for, or are personally liable to satisfy in any other manner, a debt, obligation, or liability of the company solely by reason of being a member or manager of the limited liability company.”

Based on the above, an LLC member must do something above simply being a member to invite the possibility of piercing the corporate veil and allowing a plaintiff to go after him for damages, individually.

Typically, a plaintiff will be required to show that an individual committed a stringent level of wrongdoing to pierce the corporate veil of an LLC. Control of the LLC, alone, is commonly not enough. A plaintiff should be prepared to offer proof that the individual engaged in fraud, illegality or other unlawfulness in order to pierce the corporate veil.

Additionally, piercing the corporate veil often requires a showing that the individual’s control was so complete that the business entity had no separate mind, will or existence of its own.

Put simply, piercing the corporate veil is no piece of cake.

At Heitner Legal, we can help you either go after an individual or defend against a plaintiff seeking to pierce the corporate veil. We have a wide range of experience with Business Law issues, including with regard to civil litigation and transactional matters.