What Are Some Defenses To Piercing The Corporate Veil in Oklahoma Business

Understanding Defenses To Piercing The Corporate Veil in a business relationship are critical to protecting you from potential liability. The corporate veil is a legal concept that separates the actions and liabilities of a corporation from those of its shareholders, officers, and directors. It is a tool that protects you from financial risk that’s taken on solely by your business. If you own a corporation or an LLC operating your business is nearly impossible if you are made personally responsible for the debt of your business.

Here are some ways you can protect yourself from litigation that seeks to pierce the corporate veil:

Maintain Corporate Formalities:

Ensure that your corporation operates as a separate legal entity by following all legal requirements such as holding regular meetings, maintaining proper corporate records, and keeping finances separate from personal assets. If you don’t act like a separate entity you don’t get the protection of a separate entity. This means that you can not allow your business to be an alter ego of yourself . The business is a separate entity and that’s the basis for the protection you get from the corporate veil.

Avoid Commingling of Funds:

Keep personal and corporate finances separate. Avoid using corporate funds for personal expenses or vice versa. Mixing funds can weaken the separation between the corporation and its owners, making it more difficult to use defenses to piercing the corporate Veil. An example of commingling funds is when a business owner uses corporate credit cards for personal use. The agreement made with most credit cards issued to the corporation is that they are used for business only. Violate this rule and the corporate veil might be pierced. In the event that you need to file a corporate bankruptcy the credit card companies will go after you for the credit card debt of the corporation.

Sufficient Capitalization:

Ensure that your corporation has enough capital to cover its liabilities. Undercapitalization can be a factor in piercing the corporate veil, as it may suggest that the corporation was set up to defraud creditors. If the business isn’t liquid or is otherwise insolvent and you borrow money on its behalf defenses to piercing the corporate veil can be at risk

Avoid Fraudulent Activities:

Engaging in fraudulent activities or using the corporate structure to shield personal wrongdoing can lead to the piercing of the corporate veil. Always act ethically and in compliance with the law. If a creditor can show that the business was noting more than a way for you to hide fraudulent or criminal acts your defenses will evaporate.

Proper Documentation:

Document all transactions and decisions made by the corporation. This includes keeping records of contracts, agreements, corporate resolutions, and meeting minutes. Good documentation can help demonstrate the separate existence of the corporation in case of litigation.

Limited Personal Guarantees:

This is probably the biggest way a corporate veil is pierced. In fact the veil doesn’t exist at all if you contract it away by signing a personal guarantee. Be cautious when providing personal guarantees for corporate debts or obligations. While sometimes necessary, excessive personal guarantees can weaken the protection provided by the corporate veil.

Umbrella Insurance:

Consider obtaining appropriate insurance coverage for your corporation, such as general liability insurance or directors and officers (D&O) insurance. Insurance can provide financial protection in case the corporate veil is pierced and personal liability is imposed.

Oklahoma Business Lawyers You Can Count On:

Remember, while there are Defenses To Piercing The Corporate Veil they are not absolute. Oklahoma Courts may pierce the corporate veil under certain circumstances, such as fraud, undercapitalization, or improper conduct. Therefore, it’s essential to take appropriate steps to maintain the integrity of the corporate structure and protect yourself from personal liability. For a Free consultation with a Tulsa Oklahoma business law attorney call the Kania Law Office at 918.743.2233