Piercing the Corporate Veil Explained by a Cleveland Corporation Liability Attorney

Cleveland corporation liability attorney

A key benefit of creating a corporation or limited liability company, or LLC, is so that the individuals involved generally will not be held personally liable for debts and other liabilities of the corporation. However, a Cleveland corporation liability attorney can tell you that in some cases, a court will hold individuals responsible under a doctrine called "piercing the corporate veil."

Situations Where a Court Will Pierce the Corporate Veil

A Cleveland corporation liability lawyer can explain to you the general situations where a court will pierce the corporate veil and hold individuals responsible for the acts of the company. Typically, a court will need to find all of the following elements to pierce the corporate veil:

  • Whether There Is Separation Between the Company and Its Owners.

     A court will look for real separation between a company and its owners. For example, a court will look at whether the owners and the company maintain separate finances or if the finances are commingled. If there is no separation, a court may find that the corporation is just a sham and hold the individuals behind the corporation responsible for any bad acts or debts;
  • If the Company Engaged in Fraud or Other Wrongful Act.

     A court will usually only get involved if the company is alleged to have engaged in some type of fraud or criminal act. For example, a court may get involved if the owners of the company recklessly borrowed money, gambled away assets or used the business to conduct personal or criminal affairs; and
  • Harm to Third Parties and Creditors.

     There typically needs to be some harm before a court will examine a corporation and determine whether or not to pierce the corporate veil. A court may try to right some wrong such as making whole the losses of someone doing business with the company.

A Cleveland corporation liability lawyer can explain that some common factors that a court may look at to determine whether to pierce the corporate veil include checking to see if the company was adequately capitalized and whether the company followed proper corporate formalities.

Contact a Cleveland Corporation Liability Attorney

If you have any questions about corporate liability and piercing the corporate veil, contact an attorney at the Law Office of Shapero & Green by calling 216-831-5100.


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