Shareholders of a corporation generally cannot be held liable for the acts and debts of the corporation. Courts, however, will, "pierce the corporate veil," and allow creditors to reach shareholders’ personal assets in certain limited circumstances:
- Corporation is improperly formed
- Corporate formalities are not followed
- Corporation is not maintained as a true separate entity, such as when a shareholder uses corporate funds as their own
- Corporation is used as a tool to perpetrate a fraud
- Corporation is undercapitalized in an attempt to defraud a lender
In order to benefit from the protections afforded a corporation, it is important that your company be properly formed and that you follow formalities, follow the rules, and maintain its separateness.
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