| Do you own a business as a corporation or an LLC, | | | | corporation or LLC. Among them are: |
| and think you're insulated from personal liability? Think | | | | * Keep the corporation adequately capitalized, e.g., be |
| again. There are numerous ways that a shareholder of | | | | certain the corporation has funds sufficient to cover its |
| a corporation or a member in an LLC can be held | | | | obligations; |
| personally liable for the acts of the entity. One, in | | | | * Keep the corporation's funds and assets separate |
| particular, is the alter ego doctrine. Ordinarily, a | | | | from and not commingled with your own; |
| corporation is regarded as a legal entity separate and | | | | * Maintain corporate formalities, e.g., have corporate |
| distinct from its stockholders, officers and directors. | | | | meetings, maintain minutes, pay business taxes or fees |
| Under the alter ego doctrine, however, if a corporation | | | | as appropriate; |
| is used to perpetuate a fraud or accomplish some | | | | * Keep the corporation's records separate from your |
| other wrongful purpose, a court may disregard the | | | | own; |
| corporate entity and hold the individual who controls | | | | * Do not use the corporation as a conduit for personal |
| the corporation liable for the corporation's acts. This is | | | | business; |
| known as "piercing the corporate veil." | | | | * Do not hold yourself out as personally liable for the |
| More and more frequently, lawyers are asserting the | | | | corporation's debts; and |
| alter ego doctrine in shareholder and other | | | | * If you own or control multiple corporations, utilize |
| corporate-related litigation. Understanding the possible | | | | different boards of directors, different officers, |
| exposure will help you protect yourself. | | | | different employees and different office space. |
| While a court will look at all of the circumstances | | | | Unfortunately, there is no absolute protection from an |
| regarding corporate ownership and control when | | | | alter ego claim. Following these steps, however, will |
| deciding whether to pierce the corporate veil, there are | | | | greatly reduce the likelihood that you will be held liable |
| some important steps you can take to prevent a court | | | | for the acts of your corporation or LLC. |
| from holding you responsible for the acts of your | | | | |