Piercing the Entity Veil

What happens when someone obtains a judgment against an entity, the judgment debtor refuses to voluntarily pay the judgment, and the judgment debtor has no property or assets to seize? It may turn out that the person who owns and operates the judgment debtor actually does have assets. Because entities generally shield business owner’s personal property from being seized to satisfy the debts of their business, does that mean there is no way to get to the business owner’s personal property to satisfy their business’ debt? Not always. Although entities generally do shield the business owner’s personal property, there are certain circumstances that will allow the judgment creditor to break through the shield that entity creates—traditionally called “piercing the corporate veil”—and seize the business owners’ personal property to satisfy the debts of the judgment debtor business. Each state has different laws associated with allowing an entity to be set aside for purposes of piercing the veil, and every case will be decided based on the specific facts of that case. However, the factors that generally allow this to happen include some or all of the following: - the entity is only a sham or “alter ego” of the business owner, - the entity is only used to advance the private interests of the business owner, - the entity is or was being used to defraud customers, clients, creditors, etc.; - the entity’s owners, managers, members, or directors did not observe corporate formalities; - the business owner exerted complete and total financial interest, ownership, and control over the entity in a way that benefitted the personal interests of the owner far more than the entity; -the business owner used the entity or the entity’s property for their personal use outside of the business’ purpose.