Also known as: pierce the veil · piercing the corporate veil · veil piercing · corporate veil piercing
Written by attorneys · grounded in primary & secondary sources — see below
An equitable doctrine allowing a court to disregard the separate legal personality of a corporation or limited liability company. The doctrine applies when the entity functions as the alter ego or mere instrumentality of its owners and when maintaining the form would sanction fraud or promote injustice.
Select any source to read its text and confirm it supports the definition.
Pearl Porter formed Paragon Construction with one thousand dollars and used a single bank account for both business and personal expenses. She executed contracts in the company name but kept no records, held no meetings, and transferred client funds to her personal account when projects failed. Creditors sued after the company became insolvent. The court disregarded the entity because the facts satisfied both prongs of the test for piercing.
Priscilla Parks directed all environmental compliance decisions at a subsidiary facility owned by Platinum Partners. She approved the use of hazardous materials without adequate safeguards and the facility released contaminants. Plaintiffs sought to impose liability on Parks personally. The court examined whether her direct involvement justified disregarding the subsidiary's separate status.
Paul Peterson owned several taxi companies each capitalized at the statutory minimum and insured only to the legal floor. One cab struck Piper Patel, who sued Peterson personally after discovering the companies held no other assets. The court considered whether the fragmented structure and minimal capitalization warranted disregarding the corporate forms to reach Peterson's personal holdings.
No. Statutes expressly provide that the failure of a limited liability company to observe formalities is not a ground for imposing liability on a member. Courts require additional evidence of alter ego status or injustice beyond mere informality.
Supporting sources
No. Undercapitalization must be accompanied by evidence that the entity was used to defraud creditors or functioned as a mere instrumentality. Poor business judgment without affirmative proof of fraud or alter ego operation does not support piercing.
…defendant actually serviced, inspected, repaired and dispatched them. These facts were deemed to provide sufficient cause for piercing the corporate veil of the operating company — the nominal owner of the cab which injured the plaintiff — and holding the defendant liable. The operating companies were simply instrumentalities for carrying on…
…and the extent and manner of its involvement with the facility, amount to the abuse of the corporate
Supporting sources
Courts consider inadequate capitalization, insolvency, commingling of funds, siphoning of assets by the dominant member, absence of records, and whether the entity served as a facade for the owner's personal operations. The collective weight of these factors determines whether the entity was a mere instrumentality.
Supporting sources
The first prong asks whether the LLC was the alter ego of the member so that unity of interest exists. The second prong asks whether observing the form would sanction fraud or promote injustice. An undercapitalized shell used merely to avoid personal liability satisfies both prongs.
Supporting sources
Commingling supports alter ego status when the member treats company assets as personal property and uses them for individual expenses without documentation or repayment. Regular undocumented transfers for groceries, rent, and vacations demonstrate that separate personalities no longer exist.
Supporting sources