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 protection.
How can corporate creditors be discouraged from trying to pierce the corporate veil to sue its officers or owners personally?