Limited liability is the primary reason most business owners incorporate their business. However, limited liability is not absolute. It is simply not enough to form a corporation to avoid personal liability. Under certain circumstances, Illinois courts have “pierced the corporate veil,” and held the Shareholder of a Corporation personally liable for a corporate obligation or debt.
Factors Illinois courts have considered when deciding whether or not to pierce the corporate veil and hold a Shareholder personally liable for corporate obligations include:
- The absence or inaccuracy of corporate records, including but not limited to, annual minutes of the Shareholder(s) and the Board of Director(s) of the Corporation, as well as corporate resolutions approving all major corporate action. This is true even if an individual is the sole Shareholder of the Corporation.
- The failure to observe corporate formalities, such as signing corporate documents as President.
- The failure to issue a stock certificate.
- Not using the exact same corporate name and logo, including the suffix (for example, Inc., Co., Ltd. or PC) on all corporate stationary, statements, business cards, checks, advertising, websites and social media.
- Maintaining separate corporate and personal savings and checking accounts and credit cards, and not comingling funds between the two.
Piercing the corporate veil is a real-world concern. In a 2005 Illinois case, the court pierced the corporate veil, and found that the shareholder was personally liability for an amount in excess of $1.2 Million Dollars.
Note that the above is for information purposes only, and shall not be considered legal advice. For legal advice, you should consult with an attorney.