One of the primary reasons that companies chose to incorporate is to make sure that the owners are not held personally liable for the debts of the business. Many owners are therefore surprised to learn that under certain circumstances, an owner may still be responsible for the liabilities of the corporation. The process by which this is done is known as “piercing the corporate veil.” If you are worried that you may ultimately be held directly liable for a corporation’s expenses, consider consulting with an Orange County business lawyer about your case.
When Will a Court Pierce the Corporate Veil?
Allowing a plaintiff to set aside the corporate form and go after the assets of the equitable owners is a substantial step in the litigation process, not the least because it takes away a key protection offered to corporate owners. For a judge to pierce the corporate veil, he will need to find that the owners operated the corporation as an “alter ego” to achieve some wrongful purpose. The court will ask two fundamental questions:
- Is there a unity of interests between the corporation and the owners, such that the separate personalities of the two do not really exist? In answering this question, the court will ask, among other questions, if the corporation is adequately capitalized, observes corporate formalities, and maintains separate offices, staff, records, funds, officers and/or directors.
- Would it lead to an unjust result if acts in question were attributed solely to the corporation? The conduct must amount to bad faith on the part of the owners.
If you are worried that a corporation or subsidiary you own might be deemed an alter ego, an Orange County business lawyer can help you restructure your operations to avoid piercing of the corporate veil. The experienced attorneys of Daily Alijian, LLP are ready to help you. Call 949-861-2524 for a consultation.