The business world moves quickly, and the rules of the game often change from one region to the next. When it comes to piercing the corporate veil, this axiom is especially relevant to business owners in Chicago. This article tackles some frequently asked questions regarding piercing the corporate veil in Chicago.

The corporate veil is a legal construct that protects shareholders and directors of a public- or private-owned business corporation from personal liability for certain business activity and its associated liabilities and obligations. In essence, piercing the corporate veil (also sometimes referred to as "lifting the corporate veil" or "piercing the corporate entity") is a process that strips away the veil of protection established by the corporate veil to make the shareholders and directors personally liable.

In Chicago, piercing the corporate veil is a legal construct that is for the purpose of preserving justice and fairness when corporate entities are used to commit fraud and other unlawful actions. The legal process of piercing the corporate veil is complex and can be difficult to maneuver, which is why seeking out counsel from experienced business lawyers is often recommended for business owners in the city.

What is the Process for Piercing the Corporate Veil?

Typically, the process of piercing the corporate veil begins with a determination of whether a corporation exists and is in good standing under the state's corporation laws. To make this determination, the business entity will usually need to have filed documentation with the secretary of state, such as articles of incorporation, articles of merger, and other relevant documents.

Once a determination of the corporation's standing has been made, and liability for the corporation's actions is established, then the process of piercing the corporate veil can commence. The plaintiff in the case must prove two elements in order for piercing the corporate veil to be successful: (1) that the corporation was formed primarily for the purpose of avoiding or committing fraud and (2) that the plaintiff was injured as a result of the fraud or action taken by the corporation.

Generally, the court will first ask if the corporation was adequately capitalized and if it kept separate books and records. If the plaintiff establishes that the corporation was inadequately capitalized or inappropriately managed, then the court will then examine the directors and/or shareholders and officers of the corporation. If the plaintiff can prove that the individual officers or directors were engaged in any conduct with the intent to misrepresent or defraud the plaintiff, then the court may pierce the corporate veil and make the individual officers and directors personally liable for the corporation's debts and obligations.

What are the Potential Consequences of Piercing the Corporate Veil?

Once the court pierces the corporate veil and finds that an individual officer or director was engaged in any activities that resulted in harm or damages, then that individual may be held personally liable for the corporation's actions. Depending on the severity of the situation, this can lead to considerable monetary damages in the form of legal fees, court costs, fines, and interest on unpaid debts. It is also possible that an officer or director may even face criminal charges or be held responsible for the breach of contract or violation of any fiduciary duties by the corporation.

Additionally, any assets that were obtained by the corporate entity may be seized if there is evidence that the corporation was engaged in fraudulent activities. This means that assets may be seized from corporate officers and shareholders, such as corporate offices, vehicles, or other physical assets owned by the corporation. Again, depending on the severity of the situation, this can obviously result in financial ruin for the officers and shareholders of the corporation.

What are the Ways to Avoid Piercing the Corporate Veil?

The most effective way to avoid piercing the corporate veil is to ensure that your organization is in full compliance with federal, state, and local laws. By ensuring that all of your business activities are conducted in accordance with the law and that proper documentation and filings are kept up-to-date, business owners can minimize the chances of the corporate veil being pierced in the case of legal action.

Furthermore, business owners in Chicago should also consider hiring an experienced business lawyer who can provide clarity on different issues, counsel on the potential danger of piercing the corporate veil, and help you ensure that your corporate entity is properly constituted. As the regulations and guidance regarding corporate structure can be tricky, seeking out the help of an experienced attorney can be invaluable.

In summary, piercing the corporate veil in Chicago can be a complicated and potentially costly experience for business owners. Nonetheless, by understanding the legal process of piercing the corporate veil, taking steps to ensure compliance with all applicable laws, and seeking the guidance and counsel of an experienced attorney, business owners in Chicago can help ensure that their corporate entities remain adequately protected and secure. UpCounsel’s network of experienced lawyers offers high quality, cost-effective legal services and have a average of 14 years of experience. Access our Online attorney profiles to read or view ratings and reviews before you hire.


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