Getting Started on Piercing the Corporate Veil: A Step-by-Step Guide for US Businesses
Navigating the US Corporate Law System: Complex Legal Challenge of Piercing the Corporate Veil Requiring an Experienced Business Attorney3 min read
Piercing the corporate veil is a complex legal challenge that requires the assistance of an experienced business attorney who is experienced in navigating the US corporate law system. Doing so is generally necessary when an entity’s business documents fail to adequately protect the owners from personal liability or when a business entity is, for any reason, not treated as a legal separate entity in the eyes of the law. If you’re looking to start the process of piercing the corporate veil for your business in the US, this step-by-step guide will provide you with the required resources to get started.
When invested parties decide to form a business entity, the primary purpose is to protect the members of the business from liability and the risk that accrues when conducting business activities. Piercing the corporate veil requires a legal challenge to that protection, but only when the necessary criteria are applicable. The US corporate legal system is complex and it is important for business owners to understand when and how these factors can be applied in order to determine the best course of action for their case. In this article, we will discuss further the specific steps for getting started on piercing the corporate veil with a guide tailored for those based in New York state.
Step 1: Evaluating Corporate Formalities
The first step to getting started on a corporate veil piercing is to evaluate the formality of the business entity. Formality of corporate structure helps to ensure that the business is treated as a separate unit from its members. Proper application of corporate structuring can prevent your personal assets from being held liable for debts and losses endured by your business. While each state's laws will vary, for those based in New York state, some typical steps that should follow the establishment of a business entity include the following:
Creating Operating Agreements or Articles of Incorporation
Payment of Annual Filing Fee
Well-Defined Officers and Directors Structure
Maintenance of Detailed Corporate Records
Assuming these steps have been adequately taken, the entities’ owners should not have difficulty piercing the corporate veil. If holes in the business entity is discovered or confirmed, part of the challenge will be to establish exactly where the formality breached.
Step 2: Understanding Different Corporate Veil Piercing Theories
Corporate veil piercing requires the understanding of various corporate law theories which are used to determine the level of recognition that a given entity deserves when engaging in litigation. These theories can vary from state to state, but typically require an understanding of constitutional and state statutory regulations related to corporate.
In New York, for example, the courts have largely adopted the sham theory when dealing with veil piercing cases. Under this theory, a court may objectively judge whether the formed business entity is a mere mask used to cover up acts that may not be in the best interest of the public or otherwise beneficial to the claimants in the litigation. Additionally, New York has also adopted the alter-ego theory which requires that those plaintiffs succeed in demonstrating that there is such a unity of interest between the business entity and its members that they have become one in the eyes of the court.
Step 3: Contacting Experienced Legal Counsel
Upon identification and analysis of the specific and relevant facts and laws surrounding the case, it is important to contact experienced counsel to help move the litigation process forward. An experienced business attorney who is experienced in US corporate law will be able to advise you on the most suitable course of action for your litigation. Furthermore, they will guide you through the necessary steps to ensure that your case is best presented in order to make sure that the court is able to see the merit of your claims.
When looking for experienced counsel, it is important to consider those who have a thorough understanding of the legal landscape in the state that you’re located in. In New York, for example, experienced business attorneys will have an understanding of both federal and New York state law.
Fortunately, there has never been an easier way to access experienced legal counsel than today. Services such as UpCounsel make it easier for business owners to quickly connect with experienced attorneys who can provide high quality, cost-effective services on demand. UpCounsel’s network of attorneys have an average of 14 years of experience and their profiles include ratings and reviews of clients for t heir work.
Piercing the corporate veil is a complex legal challenge that requires a thorough understanding of US corporate law and the resources to adequately present your claims in court. In this article, we discussed the different steps required to get started on piercing the corporate veil successfully. We discussed substance of the evaluation, described the theories of veil piercing, and organized different resources to help with the process.