Piercing the Corporate Veil Most Often Occurs in Instances of Fraud or Malfeasance
Despite the general rule that stockholders are not personally liable to creditors of a corporation (the operational meaning of “limited liability”), there are specific circumstances where creditors may “pierce the corporate veil” to satisfy corporate obligations by holding the stockholders personally liable. The cases generally have permitted the corporate veil to be pierced when fraud or similar malfeasance has occurred, and where it would be manifestly unfair to allow a stockholder to hide behind limited liability. Thus, it is important to note that the mere incorporation does not automatically prevent creditors of the corporation from reaching the assets of the corporation’s stockholders.
Key Facts Relied on Allow for the Corporate Veil to be Pierced
The following are the primary factors that courts have relied on in allowing the corporate veil to be pierced:
Suggestions for Maintaining Stockholder Limited Liability
To preserve limited liability for its stockholders, a corporation at a minimum should do the following to treat the corporation as a true separate entity:
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Virginia Ryan provides business law services to clients in Northern California, including Auburn, Grass Valley, Nevada City and Truckee.