Piercing the Corporate Veil

There are several ways in which to pierce a corporate veil.  That is to say that the courts in every state have allowed for the piercing of the corporate veil in cases where the owners of a corporation did not keep proper separation between the corporation and themselves. 

Of course you can pierce a corporate veil and go after the assets of officers, directors and shareholders when fraud is involved.  However, most people that own a corporation are not aware that their personal assets are at risk, in case of an audit several tax deductions may be disallowed and individual shareholders may be liable for the actions of the business all because proper documentation was not in place. 

There are thousands of court cases across the country where the courts allowed the piercing of the corporate veil in order for winners in a court case to take personal assets of the shareholders.   

By taking some simple steps each year you can protect the all the benefits you enjoy as a corporate shareholder. 

While you don't need to document routine business decisions and activities, you should prepare written minutes or resolutions for events and decisions that require formal board of directors or shareholder approval and / or participation. For example:

• Annual meetings of directors and shareholders
• The issuance of stock to new or existing shareholders
• The purchase of real property
• The approval of a long-term lease
• The authorization of a significant loan amount or substantial line of credit
• The adoption of a stock option or retirement plan
• The making of important federal or state tax decisions, and
• Many other actions

Every state has requirements for maintaining specific records for a Corporation. However, every state requires the basics of maintaining a stock ledger and stock certificates as well as annual meeting minutes of the shareholders. 
Every entrepreneur chose to incorporate to gain the benefits a corporation provides. Some of the most common benefits are:

• Asset Protection
• Personal Liability Protection
• Tax Savings
• Separate Personal and Business Credit
• Stronger Business Image

Each of these benefits can be lost by not maintaining corporate requirements.

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