Authored by Robert T. Watson
Organizing a business as a corporation or a limited liability company insulates its owners from personal liability for the debts of the company. Under certain circumstances, however, such protection from liability can be lost, thus rendering the owners personally liable. Piercing the veil can happen in tax or bankruptcy cases, as well as cases involving torts or contracts. A court may decide to pierce the veil under several circumstances, such as when a corporation is undercapitalized, owners engage in fraud or other wrongful acts, or otherwise misuse funds for their own personal benefit - the unique facts of each case must be examined. To avoid piercing, owners should be sure to keep personal and business funds separate, observe all corporate formalities, and keep detailed business records.