What is corporate veil when is it pierced

Each rule and its various implications are discussed more in depth below. If you are unsure if you are in compliance or would like hire Corporate Direct to ensure that you are, we have a couple of options. We have help clients become compliant after 23 years of improper record keeping.

Once that happens, its too late and personal assets can be jeopardized. Once you have decided that a corporation, LLC or Limited Partnership LP is the right entity for your business or asset holding purpose and you have decided which state to incorporate in, corporate formalities begin. A corporation is born when the Articles of Incorporation are properly filed. The corporate veil provided Shareholders with limited liability and is raised and maintained by management and ownership that treats the corporation like a corporation.

As indicated above, a corporation is considered to be a legally distinct entity, capable of incurring its own debts and obligations. This protection is frequently referred to as the corporate veil. When creditors or others seek to obtain a judgement from a court that makes the corporations shareholders, directors or officers personally liable, they are seeking to pierce the corporate veil.

This article will focus mostly on maintaining the corporate veil once it has been established, but briefly here are the requirements needed to set it up:. Annual filings are required to protect and ensure the longevity of the corporation. In many states, a corporation must file an annual report, providing the names and addresses of Officers and Directors, and annual fees. If such filings are not completed in a timely fashion, the state may revoke the corporate charter and the corporation will cease to exist.

The time, energy, and expense expended organizing the corporation will be wasted if the state revokes the corporate charter. While it may be possible to have the charter reinstated, the best way to maintain the corporate veil and ensure that the corporation serves its purpose is to simply perform annual filings in a timely manner.

Specifically, the Bylaws should provide the following: 1. Notice requirements for Directors meetings; 2. The minimum number of annual Directors meetings; 3.

The date for annual Shareholders meetings; 4. The requirements for special Shareholders meetings; 5. The responsibilities of each Officer and Director; The procedures for removing Officers or Directors; 6. Although they shape the internal operations of the corporation, Bylaws should not be complicated or provide intricate procedures. All decisions the corporation makes and all actions the corporation takes should be in compliance with the rules established by the Bylaws.

If the Directors, Officers, and Shareholders treat the corporation as a separate entity, courts will be less likely to ignore the division between corporate property and the rights of the individual Directors, Officers, and Shareholders.

The corporate veil will be maintained. As well, in most states it is imperative to have a current resident agent to accept service of process. Failure to have a resident agent in place can lead to arguments that the corporate veil should be pierced. Carlton is a leading case on piercing the corporate veil. The court in that case held that a plaintiff needs to prove that a shareholder used the corporation as his agent to conduct business in an individual capacity.

A court will pierce the corporate veil when it finds that the corporation is an agent of its shareholder, and will hold the principal vicariously liable , due to the respondeat superior doctrine. The court found that the corporate veil could be pierced when any of the asserted veil-piercing strands are met. Further, courts will pierce the corporate veil when the member s intended to use the company to perpetrate an actual fraud, and the company did perpetrate an actual fraud "primarily for the direct personal benefit of the considered defendant.

Limited partners and partners in limited partnerships have the same limited liability as corporations, and violations that pierce the corporate veil are handled the same way as for corporations. Because corporations and other business entities are set up as state entities, many cases involving piercing the corporate veil are in state courts. If federal tax laws are violated, these cases may be tried in federal courts. Cases involving fraud or other illegal actions may be tried in criminal courts.

Cases involving creditors may be handled in bankruptcy court. Massachussetts Cases. New York Courts. Cornell Legal Information Institute. Duke University Law School. Accessed July 12, North Dakota Secretary of State. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. The law is complex and changes often. For legal advice, please ask a lawyer.

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