It’s generally understood that a corporation or limited liability company is a separate legal entity from its shareholders or members, and therefore, that the owners are not personally responsible for the company’s debts. Not surprisingly, this is often one of the many reasons that entrepreneurs are interested in formally creating a business entity. However, what is less understood is that the protection provided to the personal assets of business owners can, under some circumstances, be lost. This loss of protection is often referred to as “piercing the corporate veil”, and when this occurs, business owners can be held personally responsible for the company’s liabilities. In Illinois, when determining whether the corporate veil should be pierced, the courts examine a number of factors. These factors include, but are not limited to:
-failure to issue stock;
-observance of corporate formalities;
-lack of appropriate corporate records;
-failure to maintain arms-length transactions;
-co-mingling of business assets with personal assets; and
-whether upholding the separate corporate existence would facilitate fraud or create unjust circumstances.
As advisors to entrepreneurs, we strive to advise our clients of the importance of maintaining appropriate corporate formalities and to assist where we can. Should you wish to discuss any questions relating to your business please don’t hesitate to contact us.