Piercing the Corporate Veil - Expectation v. Reality

One of the primary purposes behind creating a corporation is limited liability.  The corporation’s debts and liabilities are supposed to be separate and distinct from its shareholders.  Only under limited circumstances should the court “pierce the corporate veil” and impose personal liability on the officers or shareholders.  Even then, the court is supposed to be reluctant to do it.  See, e.g., Tower Investors, LLC v. 111 East Chestnut Consultants, Inc., 371 Ill. App. 3d 1019, 1033, 864 N.E.2d 927 (2007); Roiser v. Cascade Mountain, Inc., 367 Ill. App. 3d 559, 566, 855 N.E.2d 243 (2006); Cosgrove Distributors, Inc. v. Haff, 343 Ill. App. 3d 426, 429, 798 N.E.2d 139, 278 Ill. Dec. 292 (2003).

Reality, on the other hand, begs to differ.  In the recent April 2014 case Buckley v. Abuzir, 2014 IL App (1st) 130469, the First District Appellate Court decided whether or not to pierce the corporate veil and impose personal liability.  The court noted that American courts actually pierce the corporate veil 48.51% of the time.  Id. at P11.  Illinois courts pierce the corporate veil somewhere between 42%-52% of all cases.  Id.  Furthermore, in Buckley, the court pierced the corporate veil to impose personal liability on a non-shareholder, non-corporate officer, who nonetheless had an equitable ownership in the corporation.  Id. at P29.

Buckley establishes that shareholders, officers, or even non-shareholders of corporations cannot assume limited liability will always protect them.  The take-away is the importance of maintaining corporate formalities. For instance, the shareholders must keep the corporation adequately capitalized, and avoid the commingling of assets between the entity and the individuals. 

Please contact Rudolph Kaplan LLC for further information regarding how to avoid risking exposing yourself to personal liability from corporate debts and liabilities.