Beyond the Veil

Business owner examining company records

Entrepreneurs usually have a high tolerance for risk, and thus, they can be highly successful while navigating the challenges of running a company. As a business owner deals with the day-to-day stresses of making constant decisions, certain details can be overlooked and, suddenly, he or she could end up being sued for the debts and obligations of the business. This is commonly referred to as “piercing the corporate veil.” Business owners should always be mindful of the personal liability they may be incurring if they do not follow certain corporate formalities.

Michigan courts tend to look for:

  1. Not following requirements that are spelled out in the corporate documents, such as bylaws, shareholder agreements, and operating agreements.
  2. Not holding formal annual meetings or completing annual consent resolutions.
  3. Lack of consistent record-keeping.
  4. Commingling business and personal funds.
  5. Signing contracts in a personal capacity rather than in the name of the corporation or limited liability company.
  6. Using the company to pay personal expenses.
  7. Making loans to the company or to the shareholder without proper documentation.
  8. Trying to move corporate assets to the business owner’s personal name without a sale document.

Courts want to see a clear separation between the owner and the business. If the business is used to commit fraud or cause other wrongful injuries or losses to others, the courts are more inclined to find that the owner can be held responsible to make the injured party whole if the organization is simply an alter ego of the owner and corporate requirements were not observed or documented.

If you have questions and need practical guidance to keep yourself personally separate and distinct from your business entity, please contact us at 248.477.6300.

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