| Business owners often set up corporations as a | | | | used for only business purposes. |
| means of asset protection. A corporate structure for | | | | Capitalization |
| your business can protect an individual from liability | | | | Businesses must be fully capitalized. While the amount |
| from a company’s debt. The piercing of the veil | | | | varies in each industry, the failure to capitalize your |
| allows a plaintiff to attack the individual’s personal | | | | company has been used by the Court as an indication |
| assets, as well as the assets of the business. This | | | | the business was in fact the alter ego. |
| type of suit is prevalent when the corporation’s | | | | Treatment of Assets |
| shareholders or limited liability company’s members | | | | The Court will look at how corporate assets were |
| have more assets than that of the company. | | | | treated. If they were treated by the individual as his/her |
| Some say that piercing of the corporate veil is the | | | | personal assets, the Court may determine that a |
| most litigated corporate law issue. The Courts use the | | | | piercing of the corporate veil is appropriate. |
| following as a list to determine whether or not the | | | | Failure to Pay Dividends |
| corporation was an “alter ego” of the individual; | | | | Failure to pay dividends is not determinative of |
| unity of interest, wrongful conduct, and proximate | | | | whether the corporate veil has been pierced, but if the |
| cause. However this list fails to explain the real world | | | | payment of dividends was appropriate and the person |
| approach the Courts have taken. The following is a list | | | | failed to pay them, this might indicate that he was in |
| of factors that the Courts have taken in determining | | | | fact the alter ego of the company. |
| whether or not the corporate veil should be pierced: | | | | This is not an exhaustive list and not all factors must |
| Corporate Records | | | | be met for a Court to pierce the corporate veil. Instead |
| The companies financial records must be maintained | | | | the Court weighs these and other factors to |
| and docuemented. Most states also require that | | | | determine whether the business was used as the alter |
| stockholder and board of directors meet annually, if not | | | | ego of the company. If you have any questions |
| more frequently, to discuss the operation of the | | | | regarding this article or would like to discuss the issues |
| business. Not only must these meetings occur, but an | | | | presented herein with one of our attorneys, please call |
| accounting of them must be maintained within the | | | | us at (702)448-4962 or visit our website at |
| company. This accounting can be minutes, resolution, | | | | Disclaimer: The McDonald Law Group provides the |
| etc. Failure to maintain these documents is evaluated | | | | information in this web site for informational purposes |
| by the Court. | | | | only. The information does not create an |
| Financial Transactions | | | | attorney-client relationship or constitute legal advice. |
| The Court will look at whether the business had its | | | | Please contact our attorneys if you wish to discuss in |
| own bank account with bank cards and checks, and | | | | more detail the contents of this web site. |
| whether or not the funds in the business account were | | | | |