Business owners form a corporation in large part to limit liability. When a company operates as a corporation, the individual owners generally cannot be sued for things that the corporation does. Further, the individual owners will not generally be liable for the debts incurred by the business. This provides important protection to the owners. For example, the reason that investors in a shopping mall cannot usually be held personally liable if someone slips and falls in the store is because the shopping mall is generally organized as a corporation and is considered a separate legal entity. Without the separation between individuals and corporations, owning any business or even shares in any business would be very risky because personal assets would be in jeopardy.
The protection from liability and business debt, however, is not absolute. In certain cases, it is possible to hold a corporation’s owners, members and shareholders personally liable for the debts or actions of the business. When this occurs, it is a process called piercing the corporate veil. Legal actions involving a situation where someone wishes to pierce the corporate veil can be very complex situations that require a great deal of technical knowledge about corporate law. The Law Offices of Mike Ross can help clients in Silicon Valley, San Jose, Palo Alto, San Francisco, San Francisco Bay Area and throughout California involved in cases where there are questions about whether the corporate veil should be pierced.
Piercing the Corporate Veil in Silicon Valley
Piercing the corporate veil in Silicon Valley is possible under limited circumstances. The corporate veil may be pierced and owners or shareholders held accountable if:
- The corporation engaged in behavior that was fraudulent or intentionally dishonest.
- The corporation owners/shareholders ailed to follow corporate formalities.
- The corporation did not have adequate capital and was not really a separate legal entity with the ability to stand on its own.
- The corporation was closely held/ owned by a very small group of closely related people who had complete control of the business operations.
When a business is very small and privately owned, this is one of the biggest indicators that it will be possible to pierce the corporate veil, especially if any wrongdoing occurred. A failure to follow corporate formalities, especially with a closely held corporation, is also likely to result in the corporate veil being pierced. Corporate formalities including keeping corporate and personal funds separate; holding annual meetings with shareholders and the board of directors; keeping accurate minutes for meetings; adopting and following corporate bylaws; and ensuring that all owners and corporate officers follow the bylaws.
Knowing whether the corporate veil is likely to be pierced, and arguing for or against the veil to be pierced can be complicated. The Law Offices of Mike Ross is here to help regarding piercing the corporate veil in Silicon Valley, so call today to speak with an attorney about your situation.
Mike Ross
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