Be formal with your Business: Avoiding Corporate Veil Piercing (Part 1)

One of the main reasons to form a business entity is to separate business property and business liabilities from those of the individual owners.  However, in certain cases, a business transaction can lead not only to liability to the business, but also to the individual owner/owners.

The main reason for this outcome is the protection of an innocent injured party from fraud or other wrongdoing committed by a business who does not have adequate assets to cover the damage caused.  When the owner who directs or commits the wrong in the business's name then tries to claim that the injured party can only reach the inadequate assets of the business, typically the claim being brought will include veil piercing in court.

As a business owner it is important to properly form and run a businesses to avoid a potential situation where a business liability could become a liability of an individual owner.  In the next post, we will look at what actions can potentially lead to individual liability for an owner of a business.