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Piercing the Corporate Veil

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Most people believe because they incorporated, they have no personal liability. The same myth exists for Limited Liability Companies. Unfortunately there are many ways these protections do not work.

The basic mistake made by many people in small business is the signing of a guaranty. Once you sign the guaranty, (other than some community property defenses if your spouse does not sign) the door is open to your personal assets. One way to avoid that problem, if you have a long standing relationship with a vendor, is to send a registered letter advising the vendor you are cancelling the guaranty for any future purchases. You cannot revoke it for purchases already made.

Another pitfall is leased equipment. Many times the lease will have the name of the corporation but if you read it carefully it will say you are signing on behalf of the corporation and YOURSELF. A deadly statement as it avoids the corporate shield.

There are many other ways to pierce the corporate veil. One is to look at how the company was set up and run. IF there is a commingling of funds, (failure to keep a separate account) failure to get an EIN or to pay personal bills from a corporate account, you may very well have opened the door

There is also the very fact if you, the owner of a corporation cause an event that results in a law suit, ie. Auto collision, you can be sued.

When considering the entity structure you want you must also consider how you sign documents. To sign just your name when you are the president of the company without adding "as president only" you may find yourself defending a law suit.

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West, Longenbaugh and Zickerman P.L.L.C.
310 S. Williams Blvd
Suite 250
Tucson, AZ 85711

Phone: 520-518-3781
Fax: 520-748-0852
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