4 Simple Steps to Protect Your Business from Piercing of the Corporate Veil


Piercing the corporate veil can expose you to personal liability, but it can be avoided by making a few wise decisions.  Piercing the corporate veil occurs when a court decides that the owners, creditors, or directors of a corporation or LLC should be held personally liable for the debts of the corporation or LLC.   Many people who have decided to incorporate or form an LLC do so specifically to avoid this personal liability, but it may do no good if the corporation or LLC is not operated appropriately. 

The main reason that courts decide to pierce the corporate veil is that the corporation failed to be its own individual entity.  Corporations and LLCs must exist separately from their owners because in the eyes of the law such business structures are individual (non-natural) persons.  When a court determines to pierce the corporate veil, it is likely because the owners of the corporation, LLC or other structure involving limited liability, failed to adequately separate the business as its own entity. Here are 4 tips to ensure a corporation or LLC is its own entity rather than merely the instrumentality of its owners:

Never Commingle Assets

Assets held by the corporation or LLC must be used by and for the corporation and not for the personal uses of the owners.  Owners of a corporation or LLC should never use corporate funds or assets as their own.  For example, using corporate funds to pay a personal mortgage or other expense will indicate to the courts that the corporation or LLC is not being operated as a separate entity.   Make sure to keep corporate funds and assets separate from personal accounts by maintaining accounts held in the business’s name and recording the expenses for which the corporate funds and assets are used.

Make Sure Your Corporation is Adequately Capitalized

Part of ensuring that a corporation or LLC operates as a separate entity is that it actually has enough capital to maintain its operations.  Intentional undercapitalization has been used to avoid the debts of the business.  If the business does not have adequate capital it cannot pay its debts and liabilities, yet the owners will still remain free from personal liability for those business debts. In such a situation the court may decide to pierce the corporate veil because the owners have essentially defrauded the creditors and/or claimants against the business.  To avoid giving the appearance of intentional undercapitalization be sure to keep detailed records of expenses, disbursements, and liabilities of the company.  It is also important to establish and maintain usual patterns by which the company is capitalized and gives disbursements.  Further, to ensure that the corporation is never undercapitalized, establish a minimum capitalization level.  This will show that the corporation plans to payback its creditors and will ensure it has enough capital to continue usual operation. 

Corporate Formalities

Corporations or LLCs that do not follow corporate formalities may appear to be sham entities used by their owners as instrumentalities for personal gain.  Use of corporate formalities will show that the business is legitimate and being operated as a separate entity.  Holding regular meetings of members, shareholders, or directors, keeping detailed records of meetings and business decisions, and adopting bylaws or operating agreements are all important formalities to strictly adhere to as a required formality. Corporations and LLCs that adhere to these practices not only present a legitimate business to the world and to the courts, but also show that the entity is separate from its owners and is not being operated fraudulently.

Holding out the Business . . . as a Business Entity

Finally, an important step in ensuring that the corporation or LLC is actually its own entity is presenting the corporation or LLC as an actual corporation or LLC.  Seems simple, right?  Making sure the corporate status of the corporation is known is important to ensuring the corporation is dealt with as a separate entity. Business cards in the corporation’s name, a corporate logo, and the corporation’s name on communications are great ways to present the corporation to the world as a corporation.  Further, owners of the corporation or LLC should sign business documents by clearly stating their representative capacity within the business next to their signature.

Corporations and LLCs that abide by these simple guidelines are dramatically less likely to deal with issues of piercing the corporate veil, and their owners are more likely to sleep much easier.  Keeping your corporation or LLC as a separate entity is the best way to avoid piercing of the corporate veil. By keeping assets and funds separate from personal accounts, adequately and regularly capitalizing the business, following corporate formalities, and clearly presenting the business as a separate entity will help protect you as a business owner and maintain the veil of protection. 

If you want more information about Corporations and LLCs, please check out a few of our previous videos and posts:

Client Reviews

We are proud to have more than 100 five-star reviews across Google, Avvo, and other platforms.
  • Being a first time business owner, you want to make sure you're making all the right decisions. Choosing McCormick Law & Consulting, along with Emma and Taylor, made the process so easy! Emma understood right away what my primary concerns were, and was able to execute everything in a very timely manner! She was extremely easy to talk to and she took the time to explain everything to me, settling my nerves with taking this next big step. Taylor made the process of making it all official completely stress free.
    Crystal G.
  • McCormick Law & Consulting was integral in the creation of our non-profit. We promised our 12 y/o son that we would keep fighting cancer for kids like him but we couldn’t have kept that promise without John McCormick and his team. We were hooked at our first meeting when John simply asked “ Tell me about you son.” McCormick Law and Consulting took care of all the legal work while allowing us to focus on our mission. John and his team continue to be a great resource and supporter of D-Feet Cancer The Dalton Fox Foundation. We couldn’t have asked for better legal representation. Thank you McCormick Law & Consulting.

    William F.
  • I definitely could have created my new business, Davis Wealth Management LLC, but boy that would have been a mistake. Because business formation is not an area in which I practice, I had no idea where my blind spots were, and let me tell you there were plenty. The knowledge I received from the firm is invaluable.

    John McCormick and his firm are very reasonably priced and quickly and efficiently assisted me in creating my new business. It was completely turn key; they did everything for me.  I can't recommend their services enough. Also, huge shoutout to Taylor who kept me informed every step of the way!

    James D.
  • I highly recommendMcCormick Law & Consulting! My Father and I live in two separate states and the properties he needed legal services for are in Virginia. I reach out to Taylor on two separate occasions and she was very responsive and professional. The first time we used their services it went so smoothly that by the time I needed their services again I knew I could just send over the necessary documents, pay my invoice and rest assured it would all get taken care of. They eliminated the stress that comes with handling some else's affairs and I so appreciate that.
    Heather C.
  • From the the very 1st conversation with their office it was clear they would be responsive to all my questions and any support with my business. They are relatable and make their customers feel comfortable with any questions and or concerns that might arise while using their services. I am happy to have found them to support me with my small business needs!
    Lisa N.
  • I can't say enough great things about the professional team at McCormick Law & Consulting! We really had no idea of who to trust and who we could count on for quick and professional service in the Hampton Roads area for getting our new business up and running smoothly and the Team at McCormick Law & Consulting really knocked it out of the park with us!
    Jerry G.
  • I had the good fortune of working with McCormick Law on a business sales contract. I sent them the initial draft provided by the buyer along with a few notes about my specific concerns. They carefully went through the document and provided meaningful additions and corrections that better protected my interests. Thanks to Bobby and John for their personalized attention.
    Arthur B.
  • Mr. McCormick and his entire team were amazing! They assisted me in a legal matter concerning a business dispute. Mr. McCormick is highly experienced, ethical, dedicated, and was prepared to fight my legal matter in court if necessary. I thank the entire team for believing in me and would highly recommend them to anyone!!
    Jeanette L.
  • We used McCormick Law to start up another LLC and it was a great experience. I have used other lawyers and attorneys in the past and I experienced delayed responses and it was what I have come to expect.From the first interactions with Robert and his team, I was surprised to how responsive they were. I even mentioned to my new business partner that this was not normal and I was very happy.Needless to say I will be using McCormick Law for all of my business needs in the future.
    Colton S.
  • I utilized this firm for help on a real estate matter. I felt comfortable with the advice I received and am happy to continue doing business with them and referring others to the practice. Everyone I engaged with was welcoming and made the process very easy.
    Christian S.
  • John and his team were great to work with. They provided advice for starting my business and set everything up in an efficient and timely manner. I will definitely recommend them to others!

    Elizabeth H.
  • I contacted McCormick Law firm to register my moving service in NC. They did an outstanding job. Completed the process way sooner than I expected. Thank you, Taylor.

    Steve T.

    Let's talk.

    • Disclaimer: In communicating with us in response to this website, do not send any confidential information. Information sent to us in response to this website will not be treated as confidential and does not constitute an attorney-client relationship. Our professional obligations require us to perform a conflicts check before undertaking any legal representation of you. No attorney-client relationship exists or should be assumed as a result of this communication. By submitting this form, you are opting into our mailing list (your information will not be shared with anyone else).

    • This field is for validation purposes and should be left unchanged.


    McCormick Law, PC d/b/a McCormick Law & Consulting and Driving Defense Law is a boutique law firm located in Norfolk, Virginia & Raleigh, North Carolina, that seamlessly serves clients throughout Virginia and North Carolina. Whether you are a new or existing client of the firm, McCormick Law, PC, cannot represent you on any new matter until the firm has made a determination that there is no conflict of interest and that it is willing to accept the new engagement. The testimonials on this website reflect the real-life experiences and opinions of our clients. However, the experiences are personal to those particular clients, and may not necessarily be representative of all clients. We do not claim, and you should not assume, that all clients will have the same experience. Your outcome may vary.

    © McCormick Law, PC, all rights reserved