Among many tactics used in commercial debt litigation to collect unpaid debt is “Piercing the Corporate Veil.” In simple terms, veil piercing is a situation in which courts put aside limited liability afforded by corporate structure and holds a corporation’s shareholders or directors personally liable for the corporation’s actions or debts. It is most commonly applied in close corporations – smaller privately held business entities in which the corporate has a small number of shareholders, limited assets, and where recognition of separateness of the corporation from its shareholders would promote fraud or an inequitable result.
Piercing the corporate veil can occur if there has been serious misconduct or wrongdoing of the corporation. The court will consider in essence any of the factors listed below:
- Was the corporate being used as a “façade” for dominant shareholder(s) personal dealings; alter ego theory
- Concealment or misrepresentation of members
- Absence or inaccuracy of company records
- Failure to maintain arm’s length relationships with related entities
- Failure to observe corporate formalities in terms of behavior and documentation
- Failure to pay dividends
- Intermingling of assets of the corporation and of the shareholder
- Manipulation of assets or liabilities to concentrate the assets or liabilities
- Non-functioning corporate officers and/or directors
- Significant undercapitalization of the business entity (capitalization requirements vary based on industry, location, and specific company circumstances)
- Siphoning of corporate funds by the dominant shareholder(s)
- Treatment by an individual of the assets of corporation as his/her own
Not all factors have to be met to pierce the corporate veil.
We have successfully litigated piercing the corporate veil. Are you in need of an aggressive commercial debt collection attorney who works to leave no stone unturned to help you collect unpaid debt that is rightly owed? Contact the legal office of Alan M. Cohen today! Call 508-763-6604 or email [email protected].