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Piercing the Corporate Veil
The lawsuit protection features of the corporation will be available only if the integrity of the
corporation as a separate and distinct entity, apart from the individual, is respected by a court
and by the Internal Revenue Service. In matters involving a lawsuit by an injured party,
especially if a corporation has no significant assets, the plaintiff will attempt to convince the
court that the corporate entity should not be respected and that the principals of the company
should be personally liable. In these cases, the plaintiff is attempting to pierce the corporate
veil in order to obtain a judgment against the principals, who may have personal assets
sufficient to satisfy a judgment.
corporation as a separate and distinct entity, apart from the individual, is respected by a court
and by the Internal Revenue Service. In matters involving a lawsuit by an injured party,
especially if a corporation has no significant assets, the plaintiff will attempt to convince the
court that the corporate entity should not be respected and that the principals of the company
should be personally liable. In these cases, the plaintiff is attempting to pierce the corporate
veil in order to obtain a judgment against the principals, who may have personal assets
sufficient to satisfy a judgment.
There are certain rules that a Corporation and Limited Liability Company must follow in order
to preserve the protection these entities can bring. An opposing attorney will look for holes in
your entity through these formalities. And when it finds a problem, it will ask the courts void
your entity and call your company an "ALTER EGO". The courts must show fraud and a lack of
separate existence.
The Corporation must follow FORMALITIES
You must have meetings for shareholders, board of directors and members
You must keep minutes of these meetings
You must have and observe bylaws or operating agreements
You must accumulate corporate records
The Corporation must have separate banking accounts
You must not co-mingle business money and personal money
You must not co-mingle business assets and personal assets
You must not let shareholders siphon money for personal use
You must accumulate assets in the corporation
You must not be undercapitalized when applying for loans
The Corporation must have functioning officers and directors
You must not let shareholders ad partners if they don't participate
You must not let shareholders pass personal liability to the corporation
You must only sign documents as a representative of your company
You must not sign contracts without having intent to perform
to preserve the protection these entities can bring. An opposing attorney will look for holes in
your entity through these formalities. And when it finds a problem, it will ask the courts void
your entity and call your company an "ALTER EGO". The courts must show fraud and a lack of
separate existence.
The Corporation must follow FORMALITIES
You must have meetings for shareholders, board of directors and members
You must keep minutes of these meetings
You must have and observe bylaws or operating agreements
You must accumulate corporate records
The Corporation must have separate banking accounts
You must not co-mingle business money and personal money
You must not co-mingle business assets and personal assets
You must not let shareholders siphon money for personal use
You must accumulate assets in the corporation
You must not be undercapitalized when applying for loans
The Corporation must have functioning officers and directors
You must not let shareholders ad partners if they don't participate
You must not let shareholders pass personal liability to the corporation
You must only sign documents as a representative of your company
You must not sign contracts without having intent to perform
IncSmart.biz can help you with your meetings. The COMPLIANCE SERVICES program can
also provide you with stock and bylaws for your corporation and certificates and operating
plan for your Limited Liability Company.
also provide you with stock and bylaws for your corporation and certificates and operating
plan for your Limited Liability Company.
| A corporation is a legal, separate and distinct entity! |
A Corporation is represented by its directors, officers, employees, and agents, and is
operated for the benefit of its shareholders. In closely-held corporations, the same individuals
tend to act in several of those capacities and this requires an effort on the part of these
individuals to maintain distinctions among these capacities when they take various actions.
operated for the benefit of its shareholders. In closely-held corporations, the same individuals
tend to act in several of those capacities and this requires an effort on the part of these
individuals to maintain distinctions among these capacities when they take various actions.
It is essential that minutes be maintained
of board and shareholder actions.
Corporate minutes are the first line of
defense against the IRS and creditors.
of board and shareholder actions.
Corporate minutes are the first line of
defense against the IRS and creditors.
Minutes of a meeting should be prepared by the Secretary of the Corporation, signed, and then
approved by the Board or shareholders at the next meeting. Minutes should always reflect that
proper notice was given or waived, who was present and who was absent, and that a quorum
was present. Any abstentions or dissents on a vote should be noted for the protection of the
director abstaining or dissenting. Keep all your corporate records in a legal binder.
approved by the Board or shareholders at the next meeting. Minutes should always reflect that
proper notice was given or waived, who was present and who was absent, and that a quorum
was present. Any abstentions or dissents on a vote should be noted for the protection of the
director abstaining or dissenting. Keep all your corporate records in a legal binder.
| In a closely-held corporation, meetings are often held to create minutes rather than to make decisions. |
Resolutions should be considered on the following subjects
- Compensation of officers
- Authorization of important contracts
- Acquisition of property
- Loans and guarantees
- Designation of banks
- Engagements of lawyers, accountants, and other professionals
- Declaration of dividends
- Approval of mergers
- Issuance of shares
- Sale of assets
- Authorization to sign checks, deposit funds, and make withdrawals
- Approval of financial statements and audit reports
- Compliance with governmental regulations
- Adoption of employee benefit plans
