Do you have a company like a corporation or perhaps an LLC, and think you are insulated from personal liability? Reconsider. There are many ways in which a shareholder of the corporation or perhaps a member within an LLC could be held personally responsible for the functions from the entity. One, particularly, may be the alter ego doctrine. Ordinarily, a corporation is considered like a legal entity separate and dissimilar to its stockholders, officials and company directors. Underneath the alter ego doctrine, however, if your corporation can be used to perpetuate a fraud or accomplish another wrongful purpose, a court may neglect the corporate organization and contain the individual that controls the corporation responsible for the corporation’s functions. This is whats called “piercing the organization veil.”
Increasingly more frequently, lawyers are asserting the alter ego doctrine in shareholder along with other corporate-related litigation. Comprehending the possible exposure can help you safeguard yourself.
While a court will appear at all the conditions regarding corporate possession and control when deciding whether or not to pierce the organization veil, there are several important things you can do to avoid a court from holding you accountable for the functions of the corporation or LLC. Included in this are:
* Keep your corporation adequately capitalized, e.g., be sure the corporation has funds sufficient to pay for its obligations
* Keep your corporation’s funds and assets outside of and never commingled with your personal
* Maintain corporate formalities, e.g., have corporate conferences, maintain minutes, pay business taxes or charges as appropriate
* Keep your corporation’s records outside of your personal
* Don’t use the corporation like a conduit for private business
* Don’t hold yourself too much as personally responsible for the corporation’s financial obligations and
* Should you own or control multiple corporations, utilize different boards of company directors, different officials, different employees and various work place.
Regrettably, there’s no absolute defense against an alter ego claim. Following these steps, however, will help reduce the chance that you’ll be held responsible for the functions of the corporation or LLC.