Corporate structure of your company will provide protection for your personal assets. There are many events that cause a judge to disregard the corporate entity or “pierce the corporate veil.” There are some reasons why a corporate veil can be pierced. There are some simple steps you can do to avoid the corporate veil from being pierced.
Corporate veil may be pierced if the party is tricked or misled in dealing with corporation than an individual. Every time a corporation does correspondence with third parties, the officers and directors of the company need to make it clear that they acts on behalf of the corporation and not themselves individually. All documents need to clearly be entered unto on behalf of the corporation otherwise there may be are conflicts that can arise that will pierce the corporate veil.
If the company will never make a profit or go bankrupt, it is considered too “thinly” capitalized. This could be if the company is formed without sufficient capital to meet potential liabilities and debts. This often happens when an individual or a group of people use the company as a from of shield from liability instead of a legitimate business.
If the corporate fails to follow the corporate formalities where te corporation located, it can be pierced. Some of the corporate formalities are meetings, minutes, stock ledger. If the corporate entity fails to perform some of the multiple tasks the judge can rule that it is not a proper company.
The biggest mistake small companies usually make is not keep separately the accounts for the company. When an individual moves money from their bank accounts to corporate bank accounts and vice versa, then the court will ignore the corporate entity.
When the company is engaged in illegal transactions in which it is ruled that the company waswas set up as a sole means for those involved to partake in an illegal activities, the corporate veil can be pierced. For example, a company will not be tried for murder. The people responsible will be tried for it. The same thing can be used for all types of cases such as drug, trafficking, etc.
While it is possible for corporate veil to pierced, if you action when build your business, you will help to protect your own personal assets. Some steps to protect your personal assets are fairly simple and some are even common sense. The important is that you be careful in operating the business, and you get sound legal advice before doing something questionable.