How can corporate creditors be discouraged from trying to pierce the corporate veil to sue its officers or owners personally?
Corporate creditors oftentimes do personally sue business owners to collect
on corporate debts. To do so, corporate creditors attempt to ‘pierce
the corporate veil’ to recover from their owners’ personal
assets, claiming their owners are only
alter-egos of their corporation. And they can succeed if you ignore the basic corporate
formalities. So it’s important to operate your corporation, or any
other legal entity, as an independent entity – one that is distinct
from you personally or any other entity. For example, you should never
commingle assets. You must document every financial transaction between
yourself and your company, as well as related corporations. And sign your
corporate documents as a corporate agent, add your corporate name and
title aside your signature on all documents, and keep good corporate records.
Nor should you ever
voluntarily dissolve your corporation or you’ll then lose your corporate protection
as your corporation’s debts will become your personal obligations.
Finally, you want to observe all corporate formalities. For instance,
does your corporation have its own business address? Telephone number?
Does your corporation pay its own expenses? Does it have the necessary
business licenses? Bank accounts? Each point establishes that your corporation
or LLC is a legitimate and separate entity. That’s how you personally
insulate yourself from the debts of your business and safeguard your corporate