Perhaps a small vendor recently filed for bankruptcy after failing to deliver paid-for materials or a professional practice that previously contracted with a company has undergone dissolution, leaving services unprovided. In those challenging scenarios, business leaders may feel as though they have few options for recouping losses, addressing contract breaches and holding another business responsible.
Particularly in scenarios where companies have become insolvent or ceased operating, taking legal action may feel all but impossible. If a company filed for bankruptcy, continued collection efforts could actually trigger legal consequences for creditors.
In scenarios involving financial misconduct or regulatory violations, those affected by an insolvent business could potentially go to court to pierce the corporate veil in pursuit of compensation.
Owners can be directly liable in special circumstances
Formal business structures are separate from the people who own and operate them. Limited liability companies (LLCs), partnerships and corporations are separate entities. Piercing the corporate veil is the legal term for asking the courts to eliminate the legal protection granted to those who run businesses, such as LLCs and corporations.
Particularly in cases where there is evidence of misconduct on the part of one owner or member, the courts may agree to allow creditors or plaintiffs to take action against an owner rather than the company itself. While the business may be insolvent or may no longer exist, the individual responsible for the company may have valuable assets or future income that can help compensate the plaintiff organization.
Exploring every option is important when preparing for commercial litigation. An attorney can help people explore different legal remedies, such as piercing the corporate veil to hold company leaders responsible for harm caused.
