Piercing the Corporate Veil: The Business Forum Show, March 26, 2014

“Piercing the Corporate Veil” was the topic du jour on March 26, 2014 edition of The Business Forum Show. Click here to listen to the discussion.

Veil piercing refers to a creditor’s ability to penetrate the personal liability shield which is the hallmark of liability limiting entities such as corporations and limited liability companies.  It is not easy to pierce the veil but, in certain circumstances, a creditor can reach the personal assets of an entity owner to satisfy a claim.

Members of an LLC, or shareholders of a corporation, may have personal liability under certain circumstances, including the following:

(1) The members’ or shareholders’ own tortious conduct, even though the conduct may have been the result of activities on behalf of the LLC or corporation;

(2) For the members’/shareholders’ agreed upon contributions to the LLC/corporation;

(3) When they serve as agent for the entity and purport to bind the entity even when they have no authority to do so;

(4) For the collection and payment of unemployment-related taxes when those taxes were not paid to either state or federal government; and/or

(5) For entity obligations which they personally guarantee.

Minnesota law includes the following as actions justifying “veil piercing”:

(1) Insufficient capitalization for purposes of the entity undertaking;

(2) Failure to observe entity formalities;

(3) Non-payment of dividends in the case of a corporation;

(4) Insolvency of the debtor entity at the time of the transaction in question;

(5) Siphoning of funds by a dominant shareholder/member;

(6) Non-functioning of other officers and directors;

(7) Absence of entity records; and

(8) Existence of the corporation merely as a façade for individual dealings.

Archived segments are available by visiting The Business Forum Show page of my website, and be sure to tune in live (or listen to a podcast recording of the show) here.