Piercing the Corporate Veil - how good is your shareholder immunity?

The term "corporate veil" refers to the limited liability which shareholders of a corporation are supposed to enjoy. . . and they can enjoy it as long as they run their company like a corporation should be run.

If the company isn't run properly, the shareholders run the risk of losing their limited liability. This is known as "piercing the corporate veil" or the "alter ego doctrine.

The laws in most states are similar on this issue. As an example, the Nevada Supreme Court has held that "The requirements for establishing the alter ego doctrine are:

1. The corporation must be influenced and governed by the person asserted to be its alter ego;
2. There must be such unity of interest and ownership that one is inseparable from the other; and
3. The facts must be such that adherence to the fiction of separate entity would, under the circumstances, sanction a fraud or promote injustice.'"

Helpful hints . . .

Among the guidelines that should be followed are:

• Adequately fund the corporation in the first place.
• Do not commingle personal assets with corporate assets -- especially bank accounts.
• Always put contracts in the name of the corporation and sign the contracts as an officer of the corporation -- using your title!
• Ban the word "owner" from your vocabulary!
• Hold directors and shareholder meetings at least annually and keep minutes of the meeting.
• Avoid personal guarantees if possible. It's not always possible. See the page on personal guarantees.

For information about these related areas of law, click the following links:

Asset Protection: Learn how to legally protect your assets from lawsuits, taxes, and foolish heirs.

Limited Liability Companies: The Porcupine of Asset Protection

Limited Partnerships: An effective tool for asset protection

Personal Guarantees: The Good, Bad and Ugly

We'd like to be your Nevada small business attorney and to help you with your corporate needs. To explore this further, please click here.

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