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Piercing the Corporate Veil

Piercing the corporate veil is a legal determination to assert the corporate duties to the liability of its shareholders instead of treating it as a separate entity that is responsible for any debt created and owed. In most countries a corporation is considered a separate entity; therefore it protects the shareholders from liability. However, there are certain situations that can lift or pierce the corporate veil, allowing for the shareholders to be liable for corporate debt. Take a look at the questions below regarding piercing the corporate veil.

Can using a UPS box as an S Corp address jeopardize a corporate veil should the corporation ever get sued?

Case details: I have a small tightly held S Corp in MA. The address I have listed for the corp. is a UPS box in town (not a PO box but similar). This was done for safety reasons not wanting our home address public for safety reasons. There has been no problem so far (8 years) however I would like to know if this address could jeopardize my corporate veil should the corporation ever get sued? If the corporate address was changed to be the same as our home address could this also jeopardize the corporate veil having the corporation rent office/ storage/ parking space from our home? The S Corp rents the basement of my house for storage and office space along with some parking. The S Corp pays rent to the joint tenants of my home (my wife and I) It has worked out fine for a long time now however a friend advised me against this set up.

You shouldn't have an issue pertaining to piercing the corporate veil based off of the issues that you have mentioned. The UPS box is fine as well as using your home address. If you wanted to, you could rent your basement as storage space. You begin to have issues with corporate piercing when there is no defining line between the corporation and the shareholder who runs the corporation. An example of this would be; making your personal car payment from corporate checking account. You need to keep personal and corporate funds separate. You should also keep separate records to define the corporation from your personal expenses. As long as you maintain corporate formalities in check, you should be fine. The issues with your address and rentals shouldn't become an issue.

We are a non-profit 501 (c) (8) organization which owns a cemetery. We want to protect the individuals of the organization from a lawsuit arising from the cemetery. We have insurance already. Should we incorporate the cemetery as a shield to lawsuits, or would some other form, i.e...a trust, be more suitable? With the corporate idea we would make the lodge itself the holder of all shares and of course, as individuals we all make up the lodge. We are in Texas so we need an answer from someone familiar with the peculiarities of Texas law.

When trying to avoid liability for shareholders, a corporation is a good option. Usually, if the shareholders comply to corporate formalities (maintaining corporate assets within the corporation and not to benefit shareholders hold consistent meetings and offer formal resolutions) Texas courts seldom allow creditors to pierce the corporate veil and go after individual shareholders for payment.

When maintaining a business with the potential for liabilities, it is wise to combine a corporate existence with insurance. However, there are certain exceptions that may arise that may hold an individual liable, even with the corporate existence. For example, insurance is the only protection for personal liability issues that arise from negligent acts created by a government-licensed funeral director or an embalmer even with a corporate shield.

Is the corporate veil easier to pierce when there is one shareholder? Is it easier to pierce on a one shareholder S-Corp than a one-shareholder C- Corp?

The act of piercing the corporate veil usually occurs in civil litigation due to the belief that the corporation isn't able to adequately cover liabilities, and the plaintiff believes that there isn't an actual corporation, but a farce used to enhance the shareholders personal interests or to commit fraud.

When there is just one shareholder, the ability to pierce the corporate veil becomes easier, even more on an S-corporation than a C-corporation.

Piercing the corporate veil of an LLC that lacks holding the required annual shareholders or board of directors meetings as well as other corporate formalities that are not being observed; corporate records, like minutes of directors meetings are not properly or adequately maintained, what needs to be sought to pierce the veil?

Usually, the belief of an alter ego will allow a creditor to pierce the corporate veil when a corporation is not distinguished apart from its shareholders as a separate legal entity. Generally, proof of corporate funds or assets being used for personal gain is all that is needed.

The mere fact that an LLC doesn't maintain certain formalities isn't an issue due to the fact that most LLC's are formed to avoid the formalities of a corporation.

Piercing the corporate veil usually occurs when a corporation is no longer able to cover liabilities and action is taken against the shareholders. To learn about piercing the corporate veil you should consult with an Expert who is familiar with Business law.
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