Piercing the Corporate Veil: 3 Ways Business Owners Expose Their Personal Assets

The worst fear of many business owners is to lose their home, money or other personal assets in a lawsuit. To avoid this, they will often incorporate their businesses to form a limited liability company (LLC). If you are the owner of a corporation or LLC, your personal assets will generally be protected from legal action against your business.  This is because such entities are considered separate legal entities from the owner, and therefore, barring certain avoidable circumstances, the individual owner(s) are not liable for the actions of the entity.

So, how do business owners expose their personal assets to business liability? Here are 3 common ways how:

1. Personal Misconduct

As a business entity’s owner or corporate officer authorizing, directing, or actively participating in misconduct in some meaningful sense will likely result in personal liability. Refraining from committing wrongful acts is the easiest way to avoid personal liability. It almost goes without saying that whatever protection your corporate structure can offer, it is likely that crime and fraud will result in personal responsibility.

2. Commingling Assets

The law treats a corporate entity as a fictitious person, so it is separate from its owners and acts independently as long as the owners are not mixing their own money with the company’s money. Avoid spending corporate money on personal expenses and ensure that the corporation has separate accounts from your own. Owners, partners, and shareholders are all responsible for keeping their assets separate from the assets of the company, which will help ensure that your company is recognized as a separate entity. Failure to maintain the separation of corporate and personal assets could be viewed by a court as a mixture, which could lead to your personal assets being available to pay creditors.

3. Not Following Corporate Formality

Some business entities have specific regulatory responsibilities that they have to maintain in order to function. In particular, corporations may have to hold regular board meetings, keep minutes of their meetings, set statutes, and more. Again, your failure to follow formalities may not be sufficient to risk your personal assets alone, but it may result in more serious allegations such as fraud.

Seek Legal Help

If you have worries about your company, such as its business structure, operational duties or an outstanding lawsuit, you should seek assistance from a competent lawyer. Please contact the Greenbaum Law Firm, P.A. to schedule a consultation today.

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Greenbaum Law Firm, P.A.

The Greenbaum Law Firm, P.A. is a boutique, client-centric law firm concentrating in the areas of business and corporate law, contracts and agreements, and real estate. Our unique approach to the practice of law consists of positioning our clients at the center of the legal practice and pursuing their objectives in the most efficient and transparent manner.

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