When entering into a contract with a corporation, parties often assume that their dealings are solely with the corporate entity. However, under certain circumstances in California, a legal principle called “piercing the corporate veil” can come into play, especially in breach of contract cases. In this blog post, we explore what this principle means and how it might affect a legal dispute.
What Is Piercing the Corporate Veil?
Corporations and limited liability companies (LLCs) are separate legal entities from their owners or shareholders. This separation usually protects individual owners from personal liability for the company’s debts and obligations. Piercing the corporate veil is a legal strategy used to hold the shareholders or members personally liable for the corporation’s actions or debts.
When Can the Veil Be Pierced in California?
Piercing the corporate veil is not taken lightly by courts and typically occurs when:
- There’s a unity of interest between the corporation and its owners, meaning the separateness between the two has ceased.
- Adhering to the fiction of a separate corporate entity would promote injustice or an inequitable result.
Specifically, in a breach of contract case, plaintiffs might seek to pierce the corporate veil if they believe that the corporate structure is being used fraudulently or unjustly to evade obligations under the contract.
Factors Considered by California Courts
Courts in California look at various factors to determine whether piercing the corporate veil is appropriate, such as:
- Commingling of Funds: If personal and business funds are mixed without clear separation.
- Failure to Follow Corporate Formalities: Lack of proper meetings, records, or adherence to by-laws.
- Undercapitalization: Insufficient funding to cover foreseeable liabilities.
- Fraudulent or Unjust Acts: Using the corporate structure to conceal fraud or promote injustice.
Impact on Breach of Contract Cases
If a court decides to pierce the corporate veil in a breach of contract case, the individual shareholders or members could be held personally responsible for the judgment. This might provide additional avenues for collecting a judgment if the corporation itself is insolvent or underfunded.
How LA Law Group Can Help
Piercing the corporate veil is a complex and fact-specific legal strategy that requires a deep understanding of California corporate law and civil litigation. Whether you’re facing a breach of contract case or other legal disputes involving a corporation, LA Law Group is ready to help.
Our experienced team will analyze the unique aspects of your situation, assess the likelihood of piercing the corporate veil, and develop a tailored legal strategy. Call us at 866.625.2529 for a consultation.
Contact LA Law Group today. We’re committed to protecting your interests and achieving the best possible outcome.
Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. Always consult with a qualified attorney for guidance related to your specific situation.
