Piercing The Corporate Veil

"If you failed to keep proper corporate records and if you are ever sued….you have a 50-90% chance of losing your personal assets in order to satisfy a judgment."

Cornell Law Review

What is the Corporate Veil?

The corporate veil is the protection between your personal assets and your business assets. If you have a corporation or an LLC you are required to maintain company records that prove there is a separation between yourself and the company. If you do not complete and maintain these documents you will be treated like a sole proprietorship and that means you will be personally liable for the actions of the company.

Many small closely-held corporations don’t think they are held to the same standards as big companies. Quite the contrary, in the eyes of the law it doesn’t matter if you are the sole person on the board of directors, the only shareholder and the only member... it becomes even more important that you are following proper corporate procedures.

Failure to maintain your corporate records makes you liable for the company’s actions and debts, you could also be held personally responsible for tax penalties your company took advantage of.

Piercing The Corporate Veil Case Law »

You can easily assess your corporate veil's health by downloading and completing Compass Group's Corporate Health Checklist.

How To Maintain Your Corporate Veil

It all comes down to the administration of your corporation. Many business owners forget or ignore the corporate mantra, “I am not the corporation (LLC), and the corporation (LLC) is not me”. This phrase may seem simple, yet how many entrepreneurs continue to run their corporation as if it were a sole proprietorship?

The most crucial key in keeping your corporate veil in place, your assets protected, and your business out of jeopardy is corporate record keeping.

Attorneys are able to pierce your corporate veil by proving that you and the corporation or LLC are not actually separate from each other. They will strive to prove that you have been acting as a sole proprietorship despite being incorporated. It’s as simple as showing that you have not been maintaining the correct corporate documents.

Issuance of stock certificates, members ledgers and authorization of loans, purchases of real estate, annual corporate meeting minutes, corporate resolutions. These are all company records that must be kept up-to-date and in order.

Learn about how you can avoid corporate paperwork mishaps »

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DISCLAIMER: Compass Group and its employees or agents are not in the business of providing tax or legal advice. If legal advice or other expert assistance is required, the services of a person in those professions should be sought. Compass Group, its employees and agents do not make any factual determination as to the validity of any business deduction for tax purposes. Compass Group does not expressly or impliedly endorse, accept, or validate any business record produced by Compass Group on behalf of Client. The Completed Documents produced by Compass Group through this written request are based solely upon the information provided by the client.