Keep the bank accounts of the owners and the company separate.Any office space signage should clearly list the name of the company, and not just that of its owner(s). Have separate letterhead and business cards that clearly list the name of the company.Document all other major business actions, including agreements with third parties, and retain them for at least seven years.The names of the shareholders or members and how much ownership they have in the company should be kept current and stored with the rest of the corporate documents. Corporations should formally issue stock to shareholders and LLCs should issue membership interests to members in writing.While this is a good practice for LLCs as well, it is generally not necessary unless required under the company’s operating agreement.
Minutes of all meetings should be taken and kept safely stored with all other corporate documents. For corporations, hold both an initial and then annual meeting of both directors and shareholders.Adopt bylaws or an operating agreement, as applicable, and make sure they are followed by all directors and officers or members and managers.The following is a list of best practices that company owners should follow to decrease the chances that the corporate veil be pierced: These range from holding annual meetings, to keeping accurate and detailed minutes on the company books, to maintaining necessary officer positions, to failing to properly account for monies paid to or by the owners.Īlthough New York courts will generally put less emphasis on corporate formalities when it comes to LLCs, as they have fewer formal requirements than corporations, business owners are best advised to adhere to corporate formalities, especially if imposed by their LLCs’ operating agreements. One such factor courts consider is where the business owners fail to observe corporate formalities. In New York, the corporate veil may not be pierced unless there are exceptional circumstances, such as a showing that (1) the owner exercised complete domination of the company with respect to the subject transaction and (2) that such domination was used to commit a fraud or injustice which resulted in an injury to a third party. However, there are instances where courts see fit to pierce the corporate veil, disregarding the company and finding one or more of the owners personally liable. How to Avoid the Corporate Veil Being PiercedĪs a general rule corporations and limited liability companies (LLCs) are separate and distinct from their shareholders and members, which means, the owners are generally not personally liable for the debts and obligations of the business.
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