Piercing the Corporate Veil in California
This is the first in a two-part series that will focus on the legal concept of the “Corporate Veil,” with this first part defining the concept and explaining how it applies to your business. The second part will go in-depth and explain what it means for your company’s corporate veil to be “pierced” by a court of law such that the shareholders’ asset protection is compromised.
What is the Corporate Veil?
As a general definition, the corporate veil is a layer of protection that exists between the assets of a corporation and the assets of the shareholders of the corporation. When a company is incorporated, the default position that the law takes when looking at the assets of the corporation is to treat them as separate from the assets of the owners of the corporation for purposes of litigation and satisfying a judgment. One of the primary benefits of operating a business as a corporation is that if the business incurs debts or liabilities—including both expenses or adverse judgments—a court will only look to the corporation’s assets and not the shareholders’ personal assets, such as a house, a car, or a savings account.
Limiting Personal Liability
The ability to limit a business owner’s personal liability by transacting business as a corporation is one of the key ways that a corporation can be beneficial. However, this concept has also been applied in the context of limited liability companies (LLCs) wherein a company can limit the personal liability of its members by operating as an LLC.
It is important for a corporation or a limited liability company to comply with legal formalities in order to avoid having the company’s veil pierced and personal assets being used to satisfy company debts or obligations. The next part in this series will further explore when the corporate veil is pierced and help you understand how to avoid it.
ODGERS LAW GROUP specializes in corporate formation and can help you form the entity that is best for you while ensuring your personal assets remain protected. To learn more about business formation or to schedule your free consultation with Mr. Odgers, contact us by e-mail, call us at (858) 869-1114, or schedule your appointment online here.