Why do you need to know how to protect your corporate veil?  If you are a business owner, majority or minority shareholder, member of an LLC or an officer in a medical corporation such as a Management Service Organization or MSO you have not only a responsibility but a legal duty to protect the corporate veil of your company.

Are you concerned about how to prevent a creditor from piercing the corporate veil and attempting to hold you and your business partners and investors personally accountable for the debts of your business?  What does it mean to “pierce the veil” of your business entity?

What Does it Mean to “Pierce the Veil?”

The corporation is a separate being from those who own it in the eyes of the law.  Do you know how to protect your corporate veil?  The corporate veil is perhaps the most important reason to have any business entity.  It separates the assets of you, the owner(s), from the debts and contingent liabilities of the entity itself.  If the integrity of your corporate entity is well established and maintained throughout the life of your company, it will protect you and your spouse as well as every other member and/or shareholder’s personal assets from the debts and obligations of the corporate entity.

The reason a business person establishes a corporation or LLC to begin with is to create a legal entity which separates the owner(s) personal and legal identity and assets from the liabilities of the C-corporation, S-Corporation or LLC.  The crucial legal protections provided by a business entity separates and protects your personal property such as:

• Your Home
• Bank Accounts and Investments
• Retirement Accounts
• Privately Held Real Estate
• Vehicles
• Boats
• Collections

Sound Formation is a Sound Foundation

Our founding attorney, Dan Watkins, has pretty much seen it all in his more than 40 years of experience as a business and corporate attorney here in San Diego and Southern California.  He will tell you: “Sound formation is a sound foundation.”  What does this mean?

The steps you take at the outset of your company’s formation including the development of a strong LLC operating agreement, or the articles, bylaws and shareholders’ agreement of a corporation are either boiler plate documents carelessly downloaded from a website at the outset, or a well-conceived and executed set of plans which anticipate every potential issue and provide a road map to not only survive, but thrive!

San Diego LLC’s, Professional Corporations, Management Service Organizations, S-Corporations and C-Corporations are required to take regular corporate governance actions to prevent a creditor from piercing the corporate veil provided by the business entity.

Regular meetings must be documented in the corporate minutes.  Steps should be taken to update all corporate documents and to ensure every member of the organization is acting in a professional, legal and ethical manner to advance the goals and interests of your company.

Commingling of business and personal funds and/or assets is one example of the most common issues you must avoid in order to prevent a creditor from piercing the corporate veil and attempting to hold you and your business partners personally liable for your business debts.

How to Protect Your Corporate Veil – The First Step in any Business Dispute

It might interest you to know the first step a creditor will take in any business dispute or lawsuit is to challenge the validity of the LLC or corporation itself.  If you do not know how to protect your corporate veil and have not taken the appropriate actions, held regular meetings and fulfilled all compliance related regulations for the LLC or corporation to prevent a creditor from piercing the corporate veil it allows a creditor to pursue the owner(s), shareholders and/or or member(s) personally for debts and liabilities arising out of the business activities of the LLC.

Protect yourself, and the corporate veil of your LLC or corporation. We invite you to review our podcast on Corporate Governance, the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.  Learn more and learn how to protect your corporate veil so that all of the personal interests and assets you’ve worked so hard to build are secure.