Alter ego liability, or piercing the corporate veil, is a method of seeking to recover against the shareholders of a corporation. The idea is that the shareholders did not treat the corporation as one, then those harmed by it should not have to either.
Unlike many issues that are tried in court, alter ego liability is decided only by a judge. The reason is that alter ego liability is an issue of equity. So the court looks to numerous factors in deciding to pierce the corporate veil and treat the shareholders as those liable. One such factor is whether the shareholders used the corporate monies as their own. For example, did one of the shareholders get spa treatments on the company dime, or use corporate money for a trip to Disneyland?
Another factor is whether the corporation had enough capital to run its operations. If not, then was the corporation merely set up as a shell? For a more complete analysis, click on this link to see an article written by one of our attorneys.
The point of piercing the corporate veil is to be able to treat the shareholders, typically the managing ones, as the corporation itself. This allows the plaintiff to go after the personal assets of the shareholder for purposes of satisfying the debt.
A careful analysis of alter ego liability and the shareholders assets should be conducted before pursuing such a claim. The reason is that if successful and depending on the circumstances, a plaintiff may soon find themselves a creditor in bankruptcy court.
The attorneys at the Law Offices of Ara Jabagchourian, P.C. have not only litigated in the area of alter ego liability, but have tried cases on the issue. If you have questions regarding alter ego liability or piercing the corporate veil, feel free to contact an attorney at the Law Offices of Ara Jabagchourian, P.C. to set up a meeting.