Personal Liability & Piercing the Veil

Question 1

Piercing the Corporate Veil

Answer 1

A creditor can pierce the corproate veil and hold a shareholder personally liable when:
1) the corporation is the shareholder’s alter ego
2) shareholders failed to follow corporate formalities
3) corporation was inadequately capitalized at its inception to cover debts and liabilities
4) to prevent fraud

failure of formalities will not pierce LLC veil

Question 2

Passive Investors & Piercing

Answer 2

Normally, passive investors who do not participate in the business will NOT be held liable, even if the court pierces the veil.

Question 3

Torts v. Contracts Piercing

Answer 3

A court is more likely to pierce the corporate veil for tort actions rather than contract disputes