Individuals form companies, usually a corporation or LLC for a very good reason—make the company responsible for action, debts, and liabilities while protecting the individual owner. A wise move for certain, but there are ways to lose that precious protection.
The most common legal theory used to try and cause an individual to be liable for corporate acts and debts is called piercing the corporate veil. In this theory, the essence is that if the owner abuses the corporate structure and treats as nothing more than a shelter, then the owner loses protections. A primary element of this theory is handling of money. That is, the owner must not use corporate funds for personal purposes. For example, if Company A is paying Owner 1's mortgage on a house titled in Owner 1's name, Owner 1 has a serious problem.
The other theory used is labeled ultra vires. In this theory, the individual person is claimed to have acted outside her powers granted by the corporation. By virtue of acting outside the person's corporately granted powers, the individual is really acting in her own individual capacity, and not as an agent of the company.
Some careless actions and inattentiveness will put your hard earned dollars at risk. Do not lose those protections and do call me if you have any questions or concerns on this happening to you.
The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney. All information contained in links are the property of the linked site.
