When Chicago businesses are challenged in court, there are several factors to consider that could put their corporate veil at risk and potentially leave owners, directors and executives liable for damages. Piercing the corporate veil is a legal concept that seeks to hold these individuals personally responsible for corporate debts.

Piercing the corporate veil is a complex and potentially complicated process, so it’s important for business owners, company directors and executives to understand the various aspects that can play a role in how piercing the corporate veil is handled in a court of law. This article overviews the top five considerations when it comes to piercing the corporate veil in Chicago, and provides valuable insight into how these matters are handled under U.S. law.

1. Is There a Corporate Formality?

The most important factor for a business to consider when it comes to piercing the corporate veil is whether or not proper corporate formalities were effectively followed. These formalities refer to the specific suite of processes and procedures that corporations are expected to abide by in order to be seen as a distinct, independent entity from its owners, directors and executives.

In the event that a corporation has failed to meet its obligation to maintain corporate formalities, or has been dissolved under state and federal law, courts will often consider lifting the corporate veil and holding company directors, shareholders and executives personally responsible for any corporate debts or obligations.

2. Is There a Show of Fraud or Misrepresentation?

Fraud or misrepresentation can also lead to the piercing of the corporate veil. If it’s proven that the owners, directors or executives of a company have intentionally misled or committed fraud against another party, the courts may decide to lift the corporate veil and hold those individuals liable for any damages that have been caused.

Additionally, evidence of any bad faith or abuse of the corporate form may be a basis for piercing the corporate veil. This could include misusing corporate funds for personal gain, providing false information to corporate creditors or failing to keep up-to-date records of corporate financials.

3. Was There any Underfunding?

Underfunding is another reason courts may pierce the corporate veil. Underfunding implies that a company has failed to provide the necessary capital to cover its operation and liabilities, posing a risk to all other creditors and investors.

If company owners, shareholders or executives are inactive in providing capital to cover liabilities, or are simply mismanaging money on a regular basis, courts may find it necessary to lift the corporate veil and attribute corporate debts to the company’s stakeholders.

4. Are There Alter Ego Behavior?

In some cases, if a company has been incorporated to protect or conceal the activity of its people, courts may decide to lift the corporate veil and attribute corporate debts or activities to the individuals responsible.

It’s important for companies to remember to keep up-to-date records of all company activities and to establish separation between the corporation and its individuals, ensuring that the company is always the primary party in decisions and activities.

5. Was Corporate Leadership Due Diligent?

When it comes to piercing the corporate veil, due diligence on the part of company leadership, such as shareholders and directors, is essential for protecting the company’s corporate veil.

It’s important for companies to ensure they have an official set of corporate guidelines and procedures in place, in addition to having practices in place to ensure proper monitoring of impactful business decisions. Good corporate leadership should understand the importance of staying on top of corporate obligations in order to protect the company’s corporate veil.


Piercing the corporate veil is a complex process, but there are many steps an organization can take to protect itself from such an event.

It’s important for companies to make sure they formally establish their business entity, maintain a good record-keeping system and remain proactive in all decisions to ensure that the corporate veil remains intact. Additionally, companies should consider consulting with experienced attorneys such as those at UpCounsel to make sure they are informed of potential risks and liabilities as well as measures they can take to best protect their corporate veil.


Piercing the Corporate Veil,

Corporate Responsibility,

Corporate Obligations