Piercing the Protective Corporate Veil Part 3: Factors 7-9

The last post briefly analyzed the fourth, fifth and sixth of eleven factors that courts rely upon when determining whether an entity is merely an alter-ego of another entity or individual.  in this post, we will explore the next three factors:

7) Division of assets from the corporate by or to a stockholder

Courts do not look favorably upon payments made to an owner that result in a harmed creditor.  This situation can have a strong impact on the court’s decision to pierce the protective corporate veil.

8) Non-functioning of the other officers or directors

This can be an important factor for courts’ analysis when it is determined that officers and directors merely hold their seat and do not actively engage in making company decisions.

9) Commingling of funds

Courts can pierce the corporate protective veil when they determine the occurrence of  a commingling of funds. Commingling occurs when company funds are transferred to a personal bank account or into another business’s bank account (or vice-versa) without a proper accounting as to why that money was transferred for a business purpose.

This post is not intended to be legal or tax advice.  Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form their businesses.  Our skilled Chicago attorneys can help counsel you on avoiding personal liability for your corporation or other limited liability entity’s actions.  Please contact our law firm today for a free legal consultation if you would like to discuss a new business venture or business ownership.