A corporation has a separate legal identity from its owners. As a result, if the company goes bankrupt or is sued, the business owners do not personally go bankrupt or face a judgment in court. This protection from legal liability and the separation between the business and its owners is one of the main reasons why people form corporations.
However, in order to maintain its separate legal identity, the business has to actually be a real, legitimate corporation. This means that a person or group of individuals cannot just form a business for the sole purposes of avoiding liability and protecting themselves from company debt. The business owners and executives have a fiduciary duty to do what is best for the business and must maintain the business as a separate legal entity. This is also called maintaining corporate formalities.
If an executive or owner fails to actually operate the company as a business, the corporate veil can be pierced. An experienced attorney at Sepahi Law Group APC can advise business owners on how to protect themselves from liability and ensure the corporate veil is not pierced. Our attorneys can also represent plaintiffs suing a corporate owner/executive and can make a compelling case for why the corporate veil should be pierced under the appropriate circumstances.
Piercing the Corporate Veil in San Diego
In San Diego, when the corporate veil is pierced, the owners of the business can be held personally liable for the debts or wrongful actions of the company. In other words, the legal fiction of the separation is torn down, and the problems of the business become the problems of its owners.
Piercing the corporate veil in San Diego is possible only under a limited set of circumstances. For example, the corporate veil can be pierced if:
- The company/owners intentionally behaves in a fraudulent or dishonest way.
- The owners or shareholders didn’t follow corporate formalities. For example corporations should have separate financial accounts and owners shouldn’t treat the business bank account as if it is their own personal account.
- The business wasn’t adequately capitalized and/or was not actually a separate legal entity that would ever be able to exist on its own. In other words, you cannot form a shell company with no assets just to escape liability.
- The corporation was owned by a very small group of closely-related individuals who had complete control over operations.
These are just some examples of situations where the corporate veil may be pierced. Sepahi Law Group APC can help to determine whether the corporate veil is likely to be pierced under the circumstances and can represent both company owners and shareholders in legal actions. Call today to speak with a member of our legal team and learn more regarding piercing the corporate veil in San Diego.