Piercing the Corporate Veil of a Bankrupt Entity

Corporations exist to limit the liability of their owners. When a corporation or limited liability company is properly formed and run, courts consider the corporation a separate legal entity from its owners. The personal assets of the owners are therefore legally separate from the corporation, and therefore not attachable to satisfy the corporation's debts. However, this assumes good faith on the part of the owners. If the owners abuse the liability protections provided by law, U.S. courts have rules to "pierce the corporate veil" and render personal assets to creditors to satisfy legitimate claims.

• 1

  Demonstrate that the corporation has not maintained an arms-length separation with the owner's friends and family members. If you are suing a corporation, and you can show that the company routinely transferred assets or provided services for family and friends of owners, the court may rule that the company is an extension of the owner's will and not a separate legal entity.

• 2

  Show intermingling of funds. If the corporation's owner routinely mixed personal and business assets in the same account, or that the assets of the company are practically indistinguishable from those of the owner, a judge may rule any such assets that are nominally owned in the owner's personal name may become fair game for collection or judgment.

• 3

  Identify officers and directors of the company. If you can show that a number of the officers or board members had no real function, you may be able to convince a judge that the corporation is a legal fiction.

• 4

  Request records of registration and minutes of shareholders' meetings. This is a common technique used in discovery to establish that the management and ownership of a corporation are not observing the usual formalities expected of a corporation.

• 5

  Show that the managing owner has been taking funds from the corporation without recording the transaction and paying a dividend to other shareholders. If a shareholder does this, he may put his or her own personal assets at risk of collection in a lawsuit--especially from other shareholders.