Frequently Asked Questions About Piercing the Corporate Veil in Dallas
When it comes to operating a business, many owners want to understand their legal rights and obligations3 min read
When it comes to operating a business, many owners want to understand their legal rights and obligations. One such complex issue that entrepreneurs in Dallas need to be familiar with is called piercing the corporate veil. This refers to when a court disregards the legal protections for owners of a business entity, like an LLC or corporation, making them financially liable for certain debts or legal judgments that arise against the company. Although reading statutes and legal opinions can be helpful, it’s important to consult with the help of an experienced and knowledgeable business lawyer. To help you better understand the basics concerning piercing the corporate veil in Dallas, let’s discuss some frequently asked questions.
What Is Piercing The Corporate Veil?
Piercing the corporate veil is when a court disregards the legal protection provided by a business entity and holds the owners liable for the debts of the company. The legal protection provided by forms of business entities like an LLC or corporation are referred to as the corporate veil because they act as a kind of “shield” between the company and its owners, shielding their personal assets from claims or legal actions taken against the business.
When Does The Corporate Veil Get Pierced?
In most cases, if someone sues the business entity for debts or liabilities, the owners and their personal assets are not liable, and the court does not have the jurisdiction to make them so. However, when circumstances cause the court to believe that the company does not operate as a separate entity from the owner, the corporate veil may be pierced and the owners can be held liable.
Courts generally look at the totality of the circumstances to make the determination. s of when a court may try to pierce the corporate veil include if the owners did not keep separate corporate books and records, if the owners commingled personal with business funds, or if the owners had not held corporate meetings or kept required and accurate business records.
To ensure that the corporate veil is not pierced, it’s important to separate business funds and personal accounts, complete and document required corporate paperwork, maintain meeting minutes and other records, and not use corporate funds or assets for personal benefit or expenses.
What Types Of Liabilities Can The Corporate Veil Be Pierced For?
Liability for debts and obligations related to crimes or torts are the most common reasons why a court may pierce the corporate veil. Business owners may be held liable for certain types of employee misconduct that their business entity causes or is connected to, such as workplace discrimination, sexual abuse, or even medical malpractice if the company is deemed a “medical practitioner.” If the court determines that the company operated essentially as an “alter ego” of the business owner and not as a distinct entity, the owners may be held liable for the company’s debts.
When Is The Corporate Veil Not Pierced?
The corporate veil is typically not pierced when the owners of the business have taken the appropriate steps necessary to show that the company has been formed and operated with the required legal formalities. This means that separate corporate books and records have been established, that regular corporate meetings have been held and recorded, and that separate accounts have been maintained for personal and business assets. Additionally, the true purpose of creating the business entity should be followed and not abused as a way to avoid creditors.
What Are The Penalties If The Corporate Veil Is Pierced?
If the corporate veil is pierced, the owners can be held solely liable for the company’s debts and obligations and can be subject to civil and/or criminal penalties. Depending on the circumstances, creditors may even be able to seek recovery from the owners’ personal assets and income.
When Should I Speak With A Business Lawyer?
If you want to start or have an existing business in Dallas, it’s important to consult with a business lawyer. An experienced attorney can help you create and maintain the corporate structures necessary to protect you from individual liability. It’s particularly important to work with an experienced attorney to help you understand and mitigate the risk of piercing the corporate veil.
Topics:
