personal liability

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Piercing Your Corporate Veil – Part II: An Illustrative Case is Worth a Thousand Words

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Starting Up Smarter

It is remarkable to note how many major lawsuits result from a failure to attend to “minor details”—precisely, of the sort of details that many busy entrepreneurs don’t have time for.  The recent case of Moras v. Marco Polo Networks, Inc. is just one of many that illustrate this point.  

Moras, decided on May 31, 2012, by Federal Judge Paul Engelmayer of the Southern District of New York, illustrates just what can go wrong when individuals don’t attend to corporate formalities and leave themselves open to corporate veil-piercing arguments. 

Plaintiff, Moras, after he was fired, sued his employer for breach of an employment agreement, fraud and unjust enrichment.  He also sued Ramgopal, the CEO and single largest shareholder of the parent company of his employer, on a veil-piercing theory.  In defining the issue on Ramgopal’s motion for summary judgment, the Court asked, “can Ramgopal be held individually liable for the corporate defendants' non-payment of wages by piercing the corporate veil and imposing shareholder liability?” 

Don’t Let Them Pierce Your Corporate Veil . . . Protecting Against Personal Liability

Starting Up Smarter

 

One of the main reasons that entrepreneurs incorporate their businesses is to protect against personal liability.  By incorporating, they insulate themselves from liability in the event that the business just doesn’t work out, or if there is a catastrophic loss that exceeds the business’ assets. 

However, incorporating is just the first step.  Those who are not sensitive to what it takes to maintain their personal liability and vigilant in protecting it can be in for a rude and costly awakening.  More often than not, this awakening comes at the worst possible moment, when someone is seeking to assert claims beyond the company’s means and “pierce the corporate veil” so that they can reach the assets of the shareholders. 

However, incorporating is just the first step.  Those who are not sensitive to what it takes to maintain their personal liability and vigilant in protecting it can be in for a rude and costly awakening.  More often than not, this awakening comes at the worst possible moment, when someone is seeking to assert claims beyond the company’s means and “pierce the corporate veil” so that they can reach the assets of the shareholders.