In California, forming a Corporation (C-Corp or S-Corp) or Limited Liability Company (LLC) are very good ways to protect the principals of the business from personal liability. However, these entities are not fool-proof and do not offer “bullet proof” protection. Each of these entities has documents, commonly known as bylaws or operating agreements, that determine how the company is to be run.
Most company bylaws or operating agreements designate, among other things, when the company is to have meetings. If a company fails to have these meetings or fails to properly record what happens at these meetings, the company is ripe to have its corporate veil pierced.
Piercing a corporate veil occurs in litigation when the party suing the company shows that the business entity should be disregarded and a court should attach personal liability on the company’s principals. One of the most common ways a corporate veil can be pierced is by showing that the principals ignored the formality required by their company – most commonly, not having meetings as outlined in the company’s bylaws or operating agreement and the documents that reflect these meeting were held.
If your company needs assistance in making sure it is in compliance with the rules and regulations that govern it or you would like to form a business entity to protect your personal assets, feel free to contact us for additional assistance.
Scott D. Wu is an attorney licensed to practice in
The information on this blog is not legal advice, nor is it intended to create an attorney-client relationship. Legal questions should be directed to a lawyer of your own choosing.
