“Piercing the Corporate Veil” was the topic du jour on March 26, 2014 edition of The Business Forum Show. Click here to listen to the discussion.
Veil piercing refers to a creditor’s ability to penetrate the personal liability shield which is the hallmark of liability limiting entities such as corporations and limited liability companies. It is not easy to pierce the veil but, in certain circumstances, a creditor can reach the personal assets of an entity owner to satisfy a claim.
Members of an LLC, or shareholders of a corporation, may have personal liability under certain circumstances, including the following:
(1) The members’ or shareholders’ own tortious conduct, even though the conduct may have been the result of activities on behalf of the LLC or corporation;
(2) For the members’/shareholders’ agreed upon contributions to the LLC/corporation;
(3) When they serve as agent for the entity and purport to bind the entity even when they have no authority to do so;
(4) For the collection and payment of unemployment-related taxes when those taxes were not paid to either state or federal government; and/or
(5) For entity obligations which they personally guarantee.
Minnesota law includes the following as actions justifying “veil piercing”:
(1) Insufficient capitalization for purposes of the entity undertaking;
(2) Failure to observe entity formalities;
(3) Non-payment of dividends in the case of a corporation;
(4) Insolvency of the debtor entity at the time of the transaction in question;
(5) Siphoning of funds by a dominant shareholder/member;
(6) Non-functioning of other officers and directors;
(7) Absence of entity records; and
(8) Existence of the corporation merely as a façade for individual dealings.
NOTE: the information contained herein is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. Contacting the proprietor of this site does not create an attorney-client relationship. Please do not send any confidential information until such time as an attorney-client relationship has been established.