In recent years, corporate law has experienced a genuine interest in the topic of “piercing the corporate veil.” This article breaks down what that means and how it can be used to your advantage.
Piercing the corporate veil is an equitable remedy that allows a court to “pierce the corporate veil” to enforce the rights of an individual (as opposed to a corporation) under the law. This dissolution of the veil between the individuals who own a business and its stock allows a court to hold the individuals liable for their corporation’s debts, liabilities, and wrongdoing. This is a crucial tool for individuals who cannot bring a civil suit against their business partners because corporate “fraudulent transfer” protections legally protect the partners.
The Importance of Piercing the Corporate Veil
Piercing the corporate veil is a vital tool for individuals who cannot sue their business partners because corporate “fraudulent transfer” protections legally protect the partners. These protections, also known as “joint tort liability,” essentially shield the business owners from personal liability if the business commits a tort. In other words, if a business commits a tort against you, the business owners have immunity from being sued personally. Piercing the corporate veil allows the individual to sue the business owners for the business’s debts, liabilities, and wrongdoing.
Types of Corporate Veil
1. Incorporation
Incorporating a company is a process that allows a group of people to form a business entity. Generally, the formation of this entity is done as a separate legal entity from the people who own it. The incorporation can shield the business owners from being sued for the business’s liabilities. For example, liability insurance laws are generally applied to a specific person, not a business. Therefore, if a business is involved in a car accident and causes injury or death, the business owner is not liable for those liabilities. However, if the business owner is personally responsible for the accident, the incorporation can be used to shield the owner from being sued.
2. Bona Fide
A person or group of people who act as the corporation’s officers are considered “bona fide “officers. In other words, they are officers who are “in good faith” and who are not “fraudulently” attempting to act as officers. Certain types of actions performed by bona fide officers can be used to “pierce the corporate veil.” For example, while the officers of a corporation are generally protected from being sued for the wrongdoing of the business, they are not generally protected from being sued personally. In other words, a corporation’s wrongdoing can be used to “pierce the corporate veil” and hold the officers liable for the wrongdoing. However, the officers’ wrongdoing cannot be used to “pierce the corporate veil” and hold the officers personally liable for the wrongdoing.
3. Secured Transactions
Secured transactions are generally any transaction where one party (the “borrower”) promises to give the other party (the “lender”) property in exchange for a loan. One of the most common secured transactions is a promissory note, where the lender gives the borrower a note to secure the repayment of a debt.
When Can Piercing Be Used?
The key to successfully using this remedy is to know when and how to apply it. The first step in piercing the corporate veil is determining whether or not you have a good case against your business partners. If you have a contractual or legal claim against them, you are well to pierce the corporate veil’s success.
Once you’ve confirmed that you have a solid claim against your business partners, you must decide whether or not you want to go through the expense and risk of piercing the corporate veil. Piercing the corporate veil is a risky and expensive process. If you decide to go through with it, you’re putting your assets at risk. If you decide not to go through with it, you’re letting your business partners off the hook for their debts, liabilities, and wrongdoing.
How to Effectively Use Piercing the Corporate Veil in Your Defense
To successfully pierce the corporate veil, you must have a solid case against your business partners. It would help if you also decided whether or not you want to go through with it. It would help if you also decided whether or not you want to go through with it. When it comes to piercing the corporate veil, the best advice is to do your due diligence. Doing your research will ensure that you have a strong case against your business partners and are willing to take the risks that piercing the corporate veil entails.
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