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What is “Piercing the Corporate Veil?”

  • Posted on: May 5 2023
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When you own your own business in California, creditors may have reason to go after your business assets, but generally can’t go after your personal property. This is because by creating a separate legal business entity, such as a limited liability company (LLC) or corporation, business owners are afforded protection. Therefore, if the business has any liabilities, its owner’s personal assets will be shielded. This is important because you don’t want the collapse or failure of your business to infiltrate your most personal life, impacting not only you but also your family. However, there are exceptions to this protection. One such exception in which a creditor can go after a business owner’s personal assets is known as “piercing the corporate veil.”

Requirements for Piercing the Corporate Veil

Under the legal doctrine known as “piercing the corporate veil,” courts are able to ignore the separation between the business entity and its owners in certain instances. Under this doctrine, California allows the courts to hold the business owner personally liable for the business’s actions. But, in order to pierce the corporate veil, a creditor must demonstrate the following:

  1. The owners haven’t treated the business as separate, but instead as an extension of themselves;
  2. The owners have used the business in order to carry out a fraud, injustice, or other improper purpose; and
  3. Allowing the separation/shield to stand would constitute a fraud or injustice.

It’s up to the court to determine whether these factors have been met. If they have been met, the court can choose to hold the owners personally liable for the debts, liabilities, or obligations of their business. 

Piercing the Corporate Veil is Considered an Exceptional Remedy

It’s important to note that while piercing the corporate veil is an exception to the protection afforded to business owners, it is rarely used. Piercing the corporate veil is considered an exceptional remedy and it is usually only used in very limited circumstances in which the evidence of wrongdoing is very clear. Each case is different depending on the related facts and circumstances. That’s why it’s in your best interest to consult with a knowledgeable and experienced business attorney who can provide guidance on your specific case and help to walk you through your options. 

The Law Offices of Brian L. Fox, APLC Help those Who Are Facing Litigation  

If the debts and/or liabilities of your California business have left you personally vulnerable to litigation, it’s in your best interest to consult with a qualified California business litigation attorney who can help. 

At the Law Offices of Brian L. Fox, APLC, we know how important it is to protect your business, its shareholders, and your interests. We will help you to figure out what would make the most sense for you and your company so that you may succeed. To learn more or to schedule a free consultation, contact us today!

Posted in: Business Law