When a company is facing litigation, one of the potential risks is having the corporate veil pierced. We recently saw Plaintiff's counsel make this argument to pierce the corporate veil in an attempt to aggregate the number of employees that a company had with its affiliate, in order for Plaintiffs to avoid dismissal and threshold employment law criteria. This legal concept allows a court to hold the company's owners or shareholders personally liable for the company's actions or debts. To protect your company from having the corporate veil pierced, here are some tips to consider:
1. Maintain proper corporate formalities: Make sure to keep accurate and up-to-date corporate records, hold regular board meetings, and separate personal and business finances. By demonstrating that the company operates as a separate entity, you can strengthen the corporate veil.
2. Adequately capitalize the company: Ensure that the company has enough capital to operate and meet its financial obligations. If the company is undercapitalized, it may be more likely for a court to pierce the corporate veil.
3. Avoid commingling of assets: It is important to keep company assets separate from personal assets. Avoid using company funds for personal expenses or vice versa, as this can weaken the corporate veil.
4. Act ethically and legally: Conduct business in a lawful and ethical manner to minimize the risk of piercing the corporate veil. Engaging in fraudulent or illegal activities can increase the likelihood of personal liability for company owners or shareholders.
By following these tips and consulting with a commercial litigation attorney, you can better protect your company from piercing the corporate veil arguments in litigation. Remember to always seek personalized legal advice tailored to your specific situation to ensure the best possible outcome for your company.