Piercing the Corporate Veil

​Almost all new small businesses are set up as LLC's, S Corps, or C Corps.  These legal entities provide a business owner protection by creating a "Corporate Veil".

According to the Business Dictionary , the corporate veil is “a legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company’s debts and other obligations. This protection is not ironclad or impenetrable.”

This veil is great protection for a new business owner but as the definition says "this protection is not ironclad or impenetrable.  

When a business owner loses this protection, it is called "Piercing the Corporate Veil".



This loss of protection stems from certain actions a business owner may take .  Two of those actions are: 

• There is no real separation between the company and its owners and the owners fail to maintain a formal legal separation between their business and their personal finances.  

 

• Commingling assets. An example of this would be paying a personal mortgage with a business check.  

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A business owner can legally take money out of their business, but it must be done according to established practices.   For example, never pay your mortgage and personal car payment from your business accounts.  Instead, write yourself a check or transfer money into your PERSONAL account, and pay your mortgage and personal car payment from there.    

In summary, keep your company and personal finances separate to avoid many potential problems.  Its just common sense. 


Thank you,
Robert Flynn
The Service Business Bookkeeper, LLC

*This article is intended to provide insight on how business books should be kept.  I am not an attorney, and this post is not in any way legal advice.


* Thanks to Nolo.com and startgrowmanagae.com for providing great content on this subject.  Portions of this blog are a direct copy and paste from their websites.  

https://www.nolo.com/legal-encyclopedia/personal-liability-piercing-corporate-veil-33006.html

https://startgrowmanage.com/how-to-withdraw-from-business-personal-use/