Be careful not to pierce the corporate veil

On Behalf of | Oct 6, 2020 | Firm News

One of the biggest benefits of forming a business is that doing so will help protect your personal assets. Success is never guaranteed. If you knew your personal finances were on the line should things go south, no one but the foolhardy would ever take a chance on starting a company.

Selecting the proper business entity enables business owners to separate their personal assets from the assets of the business. This provides protection that is known as the corporate veil. That said, this protection isn’t bulletproof. If you’re not careful, you could be putting your personal accounts at risk should your business run into financial trouble.

Separating the business from the personal

The corporate veil can help protect your personal assets from creditors. It will also help protect your personal finances from lawsuits, so long as the claims do not involve instances of fraud. However, if you pierce the corporate veil, you open yourself up to personal liability for business-related problems.

When the lines between your business activities and personal affairs become blurred, you risk piercing the corporate veil. For example, if you use a business credit card to treat yourself to dinner, you are taking a risk. If you start diverting business funds into your personal accounts, you have most certainly done away with the protection offered by the corporate veil. You may also open yourself up to liability for failing to pay payroll taxes.

Don’t allow business troubles to invade your life

If your business is struggling to stay above water, it’s tempting to do everything in your power to keep things afloat. You may start drawing collateral from your personal assets to try and right the ship. However, the commingling of private funds and business funds would be a big mistake. Doing so effectively dissolves the distinction between yourself and the business entity. If your business is in trouble, there are other legal options available that will not put you personally at risk.

If you’ve been accused of piercing the corporate veil, it’s important to seek help from a skilled legal professional. It’s vital to ensure your personal life remains protected.