Piercing the Corporate Veil and Protecting Yourself

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Mark J. Kohler October 3, 2025 • 4 min

Mark J. Kohler, CPA and attorney, has helped millions of Americans improve their finances through practical, trustworthy tax and wealth strategies. Mark's mission is simple: deliver credible, actionable financial advice and guidance you can always rely on.

Business Building

If you’re running an LLC or corporation, you better guard the corporate veil like your life savings depend on it—because they do. Screw it up, and you’re not just risking a slap on the wrist, you’re opening the door to lawsuits, garnished wages, and a judge raiding your bank account.

What Pierces the Corporate Veil (And Why You Should Care)

The “corporate veil” is what stands between your personal assets and your business liabilities. It means creditors can only go after business assets—not your home, bank accounts, or investments. But courts can—and do—“pierce” that veil if they believe the business entity is a sham.

Here are some red flags that’ll get a judge looking closely at your books:

• Single-owner or closely held entities with no real separation between the owner and the company

• Commingling of funds—using business accounts to pay personal bills (or vice versa)

• Undercapitalization—the company has no real assets or cash to cover normal liabilities

• Ignoring corporate formalities—no annual/meeting minutes, documented decisions, or a solid corporate book with an operating agreement/by-laws and your other organizational documents

• Moving assets to one entity and debts to another to avoid creditor claims

• Holding business property in your personal name instead of the LLC or corporation

Courts Aren’t Buying Your Fake LLC: What’s Changed in 2025

The legal system isn’t messing around with fake LLCs anymore. Recent cases—like Citibank v. Aralpa Holdings—have exposed shell companies with zero real business activity, and judges are tearing into them. And bankruptcy courts? They’ve shifted too. In re Signia, Ltd., creditors, not just trustees, got the green light to pierce the veil if they spot sloppy structure. And the thing is, they don’t just give a crap about you having your corporate binder or a single shareholder meeting. They also want legitimate evidence of separation between you and your business: ongoing records, minutes, and consistent corporate behavior that proves your entity is real.

Now, keep in mind, it’s not just judges and creditors. The IRS is watching too. If your structure is more duct tape than legal formality, the IRS can reclassify your income, disallow deductions, or hit you with penalties. If your LLC walks, talks, and looks like a hobby project or tax dodge, they’ll treat it like one.

How to Bulletproof Your Business

The good news? You can stay protected. But if you want the shield to work, you’ve got to run the business like a real business. Otherwise, the courts will blow right through it. Here’s how to lock it down and make sure your veil actually holds.

• Keep separate bank accounts. No mixing personal and business funds. Ever.

• Follow your formalities. That means holding annual meetings, documenting major decisions, updating your records, and having your operating agreement/by-laws in place. Even if you’re the only owner.

• Fund the entity properly, don’t run an LLC on fumes. You need to show enough capital to cover its basic liabilities.

• Use proper signatures. Sign as “Manager” or “President,” not just your name. Contracts should be with the company, not you personally.

• Title assets correctly. If your LLC owns a rental, the LLC should be on the deed, not you. Same goes for insurance, utilities, and tax bills.

• Don’t let one entity rack up debt while another holds the assets. Courts see through that trick fast.

• Don’t use business assets personally, like driving the company car for a weekend ski trip. If you do, document it properly or don’t do it at all.

You Built the Business, Now Protect It

The corporate veil isn’t automatic. If your business is thin, barely active, or you just added “LLC” to your name and thought that was enough, you’re setting yourself up for trouble. One lawsuit or audit can peel everything back if you’re not maintaining the basics. But when it’s structured and run the right way, it’s one of the best layers of protection you can have. Don’t assume you’re covered, get it checked. My team at KKOS Lawyers can make sure your entity actually does what you need it to, book a free call today to find out how.

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Mark J. Kohler

Get Mark’s Weekly Newsletter

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What Pierces the Corporate Veil (And Why You Should Care)

Courts Aren’t Buying Your Fake LLC: What’s Changed in 2025

How to Bulletproof Your Business

You Built the Business, Now Protect It