What is "Piercing the Corporate Veil?" - and How is it Done?

In order to answer how, and when you can pierce the corporate veil, some background understanding as to what the corporate veil is is required.

In basic terms, the legistatures established and enacted laws allowing people to set up corporations, for a number of reasons, chief among them for tax purposes, as well as to limit their liability when things go wrong, and thereby protect their personal assets. 

Therefore, it should come as no surprise that courts will not allow you to disregard the corporate form, and pursue a defendant's personal assets unless there is a particularly compelling reason to do so. (This is called "piercing the corporate veil").

There is a caveat to this rule, however.

Courts will, generally speaking, allow you to pierce the corporate veil when the plaintiff can show, with competent, incisive evidence (generalized allegations probably won't suffice), that the defendant's corporate form is illusory, a mere sham, and that he's using it as a means to defraud others, such as the plaintiff. Two common examples that plaintiff's typically rely upon to establish this include where the corporation did not file tax returns, or where it didn't maintain clearly segregated bank ac

In very general terms, the person seeking to pierce the corporate veil will need to allege (and prove) facts with great specificity - rather than naked, broad-based allegations - that the defendant company was effectively a sham, as it did not maintain any separate existence from the individual running it. Primary examples of this would be where the individual defendant and the corporation commingled funds, and where the corporation failed to file its own, independent tax returns.

The rules regarding piercing the corporate veil are complex and inherently fact-specific. Therefore, it is important that you contact an attorney with specialized knowledge in this area to know your rights.

For additional information on this topic, or to see if it is applicable to your particular case, 

Jonathan Cooper
Connect with me
Non-Compete, Trade Secret and School Negligence Lawyer