Stephen Kaplan, P.C.

Maintaining the ‘corporate veil’ and adequate capitalization

While maintaining adequate capitalization to continue company business activities is simply sound, basic business strategy, there is another reason to keep your corporation or LLC adequately capitalized: Protecting yourself from creditors.

Some business owners think that maintaining a "corporate veil" protects business finances from private finances and in lawsuits against the business, creditors can't touch private finances. That's not entirely true.

Some courts have ruled that creditors can hold shareholders personally liable if the corporation was not adequately capitalized.

The 'corporate veil'

A corporation or LLC is a separate legal entity. It has accounts, property and equipment that is separate from any of its owners who have their own accounts, property and equipment. Although the owners work with and benefit from the corporation or LLC, they are separate from it. That's called the "corporate veil."

When bad times hit the corporate entity, it is easier to extricate owners from the corporation or LLC if they have maintained the corporate veil, which is to say they haven't used company accounts, property or equipment for private benefit.

As with adequate capitalization, maintaining the corporate veil is both good for business and makes common sense.

Protection from creditors

There is another reason to maintain the corporate veil. After profits evaporate or after a costly lawsuit, creditors want what is entitled to them. If the corporation or LLC doesn't have the assets to satisfy creditors, they will seek to pierce the corporate veil and gain compensation from owners' personal accounts, property and equipment.

How can owners shield themselves from personal liability from company debts? The first step is to maintain the corporate veil and avoid intermingling company and private assets. Make sure all company business is conducted on accounts and letterhead that is clearly identified as being from the company, and personal business is clearly identified as personal.

While it isn't imperative that owners respect corporate formality, they are advised that such informality doesn't play well in court when creditors are suing for compensation.

And when it comes to corporate formality, nothing works better than adequate capitalization. Showing the court that the corporation or LLC was capitalized sufficiently for the business at hand goes a long way to maintaining the corporate veil.

No Comments

Leave a comment
Comment Information

Unless otherwise indicated, attorneys listed in this site are not certified by the Texas Board of Legal Specialization.

Email Us for A Response

How can we help you?

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.


Privacy Policy

Unless otherwise indicated, attorneys listed in this site are not certified by the Texas Board of Legal Specialization.


10440 North Central Expressway
Suite 800
Dallas, TX 75231

Toll Free: 800-757-0286
Phone: 214-346-6048
Fax: 214-346-6049
Map & Directions