When should someone consider filing a piercing the corporate veil claim? Since the results in litigation are uncertain and can be expensive, it is essential that you consider all of your collection alternatives prior to filing any lawsuit. Even if a judgment is obtained, it is often difficult to collect on a judgment because the judgment debtor may be uncollectible or decides to file bankruptcy. As a result, a plaintiff should consult with an attorney and consider whether sufficient facts exist to support a piercing the corporate veil claim against third parties, including affiliate companies and individual members/shareholders.

Piercing the corporate veil cases can range from a straightforward case where the facts supporting the claim are apparent from the outset to complex cases requiring substantial discovery and retention of expert witnesses.

One of the first steps when preparing a piercing the corporate veil case is to identify the potential target defendants. Depending upon the facts of the case, this can include parent companies, subsidiaries, individual owners and other related companies. A thorough and exhaustive investigation on the potential target defendants should be performed as part of the pre-suit due diligence.

There is no precise formula for determining whether it is appropriate to file a piercing the corporate veil claim. Instead, there are a number of factors which a court will consider, including but not limited to:

  • Inadequate capitalization
  • Whether the corporation has misled others as to its corporate assets
  • Whether corporate assets have been intermingled
  • Failure to follow corporate formalities
  • Whether a shareholder/member depleted corporate assets

Whether a shareholder/member used the corporation to further his/her own private business

Even once you decide to file a piercing the corporate veil claim, a lot is at stake and therefore it is very likely that such a claim will be met with opposition. That opposition will impact your next step and you need to be prepared for that opposition ahead of time.

Experience in litigating these cases is key to understanding how strong your case really is. Overall, piercing the corporate veil cases can be complicated because of the amount of discovery required to put together a solid claim and the potential need for a forensic accountant and other experts. Nevertheless, if the judgment debtor is uncollectable or in a bankruptcy, filing a piercing the corporate veil claim may provide a plaintiff with an alternative remedy to recover its losses.

If you think you may have a piercing the corporate veil claim, please contact Iurillo Law Group, P.A to discuss your facts and to explore the possibility of pursuing this avenue of collection efforts.

The contents of this blog and website are for informational purposes only and do not constitute legal advice. Use of and access to this blog and website do not create an attorney-client relationship between the user and Iurillo Law Group, P.A.