“Piercing the corporate veil” refers to the legal concept of the owners of a corporation losing the limited liability protections provided by the corporate structure. While corporations have an independent existence from their owners and are treated as separate entities, liability can still be imposed on owners in certain cases. 

I corporate formalities were not followed, assets were commingled, or fraud occurred, the personal assets of any parties deemed responsible can be taken to satisfy the corporation’s debt.   

What is the Corporate Veil?

Businesses registered as corporations or limited liability companies (LLCs) provide their owners with certain legal protections against liability. Owners can rarely be held personally liable for the company’s debts or claims made against the company. The separation between a company and its owners is called the “corporate veil.”

Due to the legal protections offered by the corporate veil, the personal assets of the owners cannot be seized to settle any judgments or debts of the company. While corporate owners are rarely responsible for what the company does, the liability protection they are granted is not absolute in all situations.  

How Can the Corporate Veil Be Pierced?   

In New York, the corporate veil may be pierced when these two elements are met: 1) the corporation’s owners completely controlled the corporation and failed to treat it as a separate business entity, and 2) the owners used their complete control to commit fraud, wrongdoing, or a dishonest act in connection with a transaction. The plaintiff must prove these elements by a preponderance of the evidence. The preponderance of the evidence means an amount of evidence persuades the jury the claim is more likely true than not. 

A jury would consider many factors in determining if the corporate veil should be pierced in a particular case, including whether: 

• The owners ignored the separate corporate identity of the business;
• The corporation did not have sufficient funds or insurance to pay its own debts and satisfy its liabilities;
• The owners did not separate the corporation’s assets from their own; and
• The owners used the corporation’s assets for personal needs.

A corporation can take several measures to help ensure owners do not incur personal liability for the company’s debts. To avoid corporate veil piercing, a company should have adequate capital and adhere to corporate formalities. The company should also have its own bank accounts and keep good records to ensure assets remain separate from owners. 

The corporate veil may also be pierced between affiliated or subsidiary corporations where the parent corporation used the subservient corporation to commit a wrongful act. This form of veil-piercing is called the “alter ego” doctrine, which allows for a legal action to be taken directly against the dominant corporation. This form of veil-piercing is a separate theory used to pierce the corporate veil that can come into play when proper formalities were not taken — and a corporation lacks a separate identity from its owners. Where a parent company lends assets to a subsidiary company, the loan should be properly documented and adequate records are kept to avoid incurring personal liability. 

Contact an Experienced New York Business Attorney

If you are facing a matter involving corporate liability, it’s essential to have a skillful business law attorney by your side who can protect your legal and financial rights. Brinen & Associates is dedicated to providing trusted representation to corporate owners for a broad scope of business matters, including those that involve piercing the corporate veil. Call (212) 330-8151 or send us a message to learn how our New York Business Law attorneys can help.