Piercing the Corporate Veil with Limited Liability Companies

Owners of a limited liability company (“LLC”) are generally protected by the principle that they are not personally liable for the actions or debts of the company. However, an LLC’s protection of its owners’ personal assets is not absolute. There are several instances in which a court could hold an LLC owner liable for debts or misconduct. This process is called “piercing the corporate veil,” and it can be applied to LLCs or corporations.

LLCs exist as entities separate from their owners. In addition to filing business formation documents with the Secretary of State such as Articles of Organization, LLCs must also have an operating agreement, business plan, tax plans, and more. When a business fails to operate in accordance with the legal requirements necessary to remain an LLC, a court can pierce the veil and take away the company’s liability protection. Piercing the corporate veil permits a creditor of the company to reach the assets of the individual business owners.

While courts are generally hesitant to pierce the corporate veil, Indiana courts have laid out several factors they will consider when deciding whether to pierce the corporate veil. These include:

• Whether the entity was undercapitalized
• Whether there is an absence of company records
• Whether the owners used the LLC to promoted fraud, injustice, or illegal activities
• Whether the owners used the company to make payments on individual obligations
• Whether the owners comingled personal assets with those of the business

LLC owners may suffer serious financial consequences if a court decides to pierce the corporate veil of their company. An attorney can help you make sure you are doing all you can to protect your business’s limited liability status, including avoiding the pitfalls listed above.

Do you have more questions about piercing the corporate veil and how to protect yourself from it? McNeelyLaw has Indiana business law attorneys that are available to consult with you to make sure you are following all of the necessary steps to maintain your business’s limited liability status. Contact us today at 317-825-5110 to speak with an attorney.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.