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Avoid Piercing your Corporate Veil

Owning and maintaining a company can be a lot of work. It is important that you sit down with a lawyer from the beginning to lay a good foundation. Lack of a good foundation and proper maintenance can lead to bad news and financial worries not only for the corporation but also the shareholders. When a company is not built on a solid foundation the company opens the door for a creditor to pierce the corporate veil. “What is the corporate veil, you may ask?” The Corporate Veil is a legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company’s debts and other obligations. This protection is not indestructible, and destruction usually begins on the inside of the company.

To avoid such destruction it is important that the Company’s records, financial paperwork, and tax information remain current. It is very important to keep the Company’s personality separate from its shareholders. It is imperative to avoid co-mingling funds or improper conduct that could lead the court to find that the company’s business was not conducted in accordance with the provisions of corporate legislation. The Court may hold the shareholders liable for the company’s obligation if the creditor can prove the following:

(1) shareholder dominated and controlled corporation to such extent that corporation’s independent existence was in fact non-existent, and shareholder was alter-ego of corporation;
(2) corporate form must have been used for fraudulent or improper purpose; and
3) such fraudulent or improper use caused injury to claimant.

Avoid the worries, the time, and litigation, Boyer Law Firm is equipped to assist you. If you need assistance with filing your paperwork for incorporation, setting up your business finances, or preparing your tax information contact Boyer Law Firm.

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