How can a plaintiff pierce the corporate veil

Was the company inadequately capitalized? Did the owner maintain annual meeting minutes? Issue stock certificates or LLC membership certificates. Timely pay your annual State Franchise Tax Board fee. Keep your taxes for the business current and up to date. File your annual Statement of Information with the Secretary of State. While application of the doctrine depends on the facts and circumstances of each case Ledy v.

Wilson , 38 A. These factors include, among others: 1 the failure to adhere to corporate formalities; 2 inadequate capitalization that is, the corporation or LLC does not have sufficient funds to operate ; 3 a commingling of assets; 4 one person or a small group of closely related people were in complete control of the corporation or LLC; and 5 use of corporate funds for personal benefit.

Shisgal v. Brown , 21 A. No one factor controls the consideration. Tap Holdings , A. Recovery Credit Servs. Wrigley Jr. Waters , F. See also Bahar v. Schwartzreich , A. Business owners must operate in accordance with certain principles and procedures. It is important that business owners consult with experienced legal counsel to ensure that they are following the procedures in order to avoid veil piercing and personal liability.

As discussed previously in this series, the general rule in Michigan is that an individual's personal assets are shielded from business liabilities unless: The business is a mere instrumentality of another entity or individual; The business was used to commit a fraud or wrong; and The business caused an unjust loss or injury to a plaintiff.

Entity plaintiffs are almost twice as likely as individual plaintiffs to successfully pierce the corporate veil. Courts are more likely to pierce to enforce a contract claim than to award recovery to a tort claimant.

The 'kitchen-sink' approach to piercing litigation adding as many possible substantive claims as possible is not as effective as bringing a single claim. The author's most interesting and useful findings include: Fraud, owner domination of management and operations, and commingling of funds have the strongest and most predictive relationship with piercing the corporate veil. If you allow these companies to overlap with each other by mingling their assets or resources, you could be vulnerable to veil piercing.

Under Michigan law, a plaintiff must establish three elements to convince a court to pierce the corporate veil:. The first element examines whether the business was truly independent or whether it was merely an instrumentality of the owners.

This may also be called unity of interest or the alter ego doctrine. An LLC is meant to be a shield against personal liability.

But to be treated as such when it comes to liability, the LLC has to truly be a distinct entity from its owners. If the owner of the LLC is another corporation or LLC, the court also may consider whether those entities have the same employees or offices. To pierce the LLC corporate veil, it is not enough to simply show a unity of interest. A plaintiff also has to show that the owners used the LLC to commit a fraud or a wrong.