What is Piercing the Corporate Veil and Why Is It Important?

Piercing corporate well, means when someone forms a form of corporation, does some activities under the corporation thinking he is NOT Personally Liable. But then the court decides he is.

The chances that a court can do the piercing depends on the state laws and the facts of the situation. Usually courts DO NOT LIKE to do it, but they may give an exception if a “serious misconduct” such as “undercapitalization” or “intermingling of assets” has been done.

This “serious misconduct” generally does not include debt to the “creditors”, but if the corporation is created to falsely burry the liability, creditors too, may have chances to pierce the veil.
In California the courts use “Alter Ego Doctrine” among other factors (fairness to creditors, corporation, members) to decide whether to go after a corporation.

For example they pay attention to the wrong doings including but not limited to the following:

Under-Capitalization, Comingling's, Paying Personal debts ( Intermingling), diversions of assets to other corporation, formation of corporation with intention to commit fraud, failure to obtain authority to issue stock, failure to follow corporate formalities, having same officers for two corporations, entering contracts for personal benefit of the owner, concealment or misrepresentation of the management, duties, forming contracts to avoid performance liability and use corporation as a shield, use the corporation as the front for illegal activities and similar activities with the intend to mask or deter the liability.

Because in general and based on basic assumptions, corporations are formed to be protections for personal liability and to encourage trade, business and fair dealings, the order of piercing the veil is a devastating news for the owners and shareholders. Therefore it is very important that you contact an attorney before you start a corporation and engage activities or after liabilities are in the horizon or are set froth in the form of a lawsuit.

This is a legal blog. It is not intended to be used as legal advice. This blog does not create Attorney-Client Relationship. For further information please contact the law offices of attorney Ramona Kennedy.

Ramona Kennedy (Attorney) received her Jurisprudence Doctorate in America and is a licensed attorney in California (USA). Ramona Kennedy is a member of American Immigration Lawyers Association (AILA) & Orange County Trial Lawyers' Association. Ramona Kennedy is fluent in English and Farsi (Persian).
Attorney Ramona Kennedy is admitted to represent Clients in the following Courts:
• The United States Supreme Court
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• All US Immigration Courts, California Supreme Court
• All California State Courts.

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