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by dataflow
1563 days ago
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This is a fantastic question. I would love an informed answer to this question from someone who's actually been on the other side of a lawsuit in a 1-person company. For context, as a layman, when I Googled this a while ago, the understanding I came away with was that while there can be some benefit to form an LLC in this regard, in reality it's Very Hard (TM) for a 1-person company to truly avoid the risk of the corporate veil getting pierced (regardless of the kind—LLC or whatever). The way I understood it, the entity suing you will look for any and all excuses in your records to try to pierce the corporate veil—and these can include anything from "mixed personal & corporate funds" to "did not properly keep detailed minutes of corporate actions", to other things I'm not aware of. And when there's only 1 person in the company, it's generally more difficult to abide by all the formalities in practice and keep proper documentation of them and convince others that you are indeed keeping doing things properly, whereas with 2+ people, it's much easier, and as a result of that fact (IIRC) judges are apparently much less likely to pierce the corporate veil when there are multiple people in a company. But as I mentioned, I'm a total layman here, and I would love more info from someone who actually has any legal experience with this kind of concern. |
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It's not just a question of formalities, it's a question of general intent.
The Wikipedia article on "Piercing the corporate veil"[1] provides this example:
> A simple example would be where a businessman has left his job as a director and has signed a contract to not compete with the company he has just left for a period of time. If he sets up a company which competed with his former company, technically it would be the company and not the person competing. But it is likely a court would say that the new company was just a "sham" or a "cover"; and that as the new company is completely owned and controlled by one person that the former employee is deliberately choosing to compete, and so is in breach of that non-competing contract.
[1] https://en.wikipedia.org/wiki/Piercing_the_corporate_veil