Start your business
Start your business
Run your business
Run your business
Grow your business
Grow your business
Accountants and Bookkeepers
Accountants and Bookkeepers
- Accountants and Bookkeepers
  Learn how accountants and bookkeepers can be productive in these articles & guides
- Learning and Development
  A range of informative content to enhance your QuickBooks experience.
Updates
Updates
- Product Updates
  Watch this space for monthly product updates.
- Intuit News
  Latest news, articles & guides

Need help choosing a plan?

1800 917 771 Schedule a call

Schedule call

What is the corporate veil and what happens if you pierce it?

June 5, 2023

When you establish a company by forming a proprietary limited company (PLC) or corporate entity, you are creating a separate legal entity. The entity can enter into contracts, purchase goods and services, take on debt, and file litigation against others. Legally, it has most of the same rights and powers that you have in your personal life.

Because your business is a separate entity, if it gets sued, defaults on a loan, or declares bankruptcy, creditors can’t place a claim on you and your personal assets at least in theory. This is called “the corporate veil.”

However, if you, as the business owner, do not take steps to protect the corporate veil, you may no longer receive personal liability protection. “Piercing the corporate veil” is the common phrase used to describe this problem.

Thus, protecting the corporate veil should be of utmost importance to business owners. In this article, we’ll cover everything you need to know about the corporate veil. We’ll outline what it is and what you need to do to avoid “veil piercing” so that you can protect your personal assets.

What is the corporate veil?

According to the Business Dictionary, the corporate veil is “a legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company’s debts and other obligations. This protection is not ironclad or impenetrable.”

The definition continues, “Where a court determines that a company’s business was not conducted in accordance with the provisions of corporate legislation (or that it was just a facade for illegal activities), it may hold the shareholders personally liable for the company’s obligations under the legal concept of lifting the corporate veil.”

So essentially, the corporate veil is the liability protection that owners, corporate officers, and corporate shareholders receive when they form a limited liability company or corporation. In Australia, this applies to proprietary limited companies and limited companies.

The corporate veil is not relevant to sole traderships and partnerships, as these business entities inherently do not have personal liability protection. The owners of sole traderships and partnerships are responsible for business debts.

What is piercing the corporate veil?

Owners of proprietary limited companies and limited companies are afforded personal liability protection. However, this protection is not guaranteed, nor is it a right. According to Cornell Law School, “‘Piercing the corporate veil’ refers to a situation in which courts put aside limited liability and hold a company’s shareholders or directors personally liable for the company’s actions or debts.”

This means that the liability protection afforded by proprietary limited company and limited company structures is limited. It’s not permanent, and there are things a company can do to lose it by piercing the corporate veil. Once the veil is “pierced,” it’s very challenging for a company to recover.

What constitutes piercing the corporate veil?

Owners must continue to protect the corporate veil throughout the lifespan of the business by keeping business and personal assets separate.

If a business owner does not treat his or her company as a separate entity, attorneys may attempt to lay claim to the owners’ personal assets if there’s a legal dispute. This means that business assets must be kept separate from personal assets. Corporate owners need to have separate bank accounts and books.

Failure to keep separate accounts, thereby intermingling personal and business finances, is one of the quickest ways to pierce the corporate veil and expose your personal assets to risk. This may be more challenging for sole-owner businesses. An accountant can help you ensure that you keep your books clean and separate.

One of the other common reasons for piercing the corporate veil is small business owners failing to follow corporate formalities. For instance, some of the requirements of corporations are that they hold annual meetings of stockholders, keep minutes of board meetings, and maintain corporate by-laws. Proprietary limited company owners don’t have such strict requirements, but they must do things like review their annual statement from ASIC and maintain operating agreements.

These are straightforward requirements for business owners to follow, but it’s easy to overlook them. Failure to abide by these requirements could expose a company to a piercing of the corporate veil.

What other actions could pierce the corporate veil?

Courts tend to look at a few common factors when determining whether the corporate veil has, in fact, been pierced. Here are some common mistakes that lead to a piercing of the corporate veil:

The confused intermingling of business activities, assets, or management with personal activities and accounts
Thin capitalisation, which is a reference to the debt-to-equity ratio (If a company carries a lot of debt and very little capital, this could pierce the corporate veil)
Non-observance of corporate formalities, including the ones mentioned above, like not hosting shareholder meetings
Absence of corporate records, including things like by-laws and operating agreements
Insolvency at the time of the disputed transaction, which means that the company entered into a deal knowing that it would not be able to repay the debts owed
Siphoning away of corporate assets by the dominant shareholders
Officers and directors who don’t fulfil their obligations and duties as outlined in governing documents like the by-laws
Use of the corporation in promoting fraud

No one single action controls the situation. Instead, it’s up to the courts to determine whether the veil has been pierced. The more severe the situation, or the more instances that occur, the higher the probability that the courts will rule in favour of piercing the corporate veil.

As you can imagine, this is more subjective than objective. Although it’s easy to interpret this as having “wiggle room,” the better way to look at it is by understanding you must be diligent in protecting the corporate veil, crossing all your t’s and dotting all your i’s. So what can business owners do to protect their corporate veil?

Grow Your Business with QuickBooks

30-day free trial

Buy now and save

Protecting the corporate veil

As mentioned, the easiest thing to do to protect the corporate veil is to maintain a clear separation between business and personal activities. You should not do things like purchase personal products with business credit cards.

Another way to protect your company and protect the corporate veil is by keeping a thorough paper trail. You should keep receipts of all transactions, invoices, and other relevant documents. You should also maintain detailed records of things like meeting minutes and by-laws.

Keep this information in a safe place that’s easy to access. You should consider keeping a digital backup as well. The documentation should be detailed and accessible so that you can explain any transaction, no matter how long after it took place.

Other ways to protect your company include:

Have a business plan or goal statement that shows how you plan to grow the company
Have enough money in your business account to cover current transactions and liabilities
Never finance your business from a personal account
Make it known whether you’re operating as a proprietary limited company or a limited company
Maintain records of all filings you submit to the ASIC and ATO

If you find yourself being sued, the plaintiff will be attempting to pierce, or lift, your corporate veil. As we’ll detail below, it is beneficial in these cases to hire a lawyer.

However, the more important thing is that you make attempts to protect the corporate veil before accruing debts. Hopefully, with sound financial management, you’ll never run into a situation where someone attempts to pierce your corporate veil.

But on the chance that the day comes, you’ll be much better off if you kept diligent records and followed corporate compliance.

When to hire a lawyer

When it comes to protecting the corporate veil, hiring a lawyer is likely in your best interest.

We recommend forming a relationship with a law firm upon first registering your business. This relationship will provide ongoing counsel from somebody who knows your business. Law firms will not only help with protecting the corporate veil, they can also help with things like reviewing contracts and chasing missing payments.

Once a claim against your company has arisen, it’s practically impossible for you to go back and “sure up” or “protect” the veil. After a claim, attorneys can only work with the facts that exist, which could expose you and other owners to a piercing of the veil.

The good news is that, according to Cornell, generally speaking, courts in the United States have “a strong presumption against piercing the corporate veil, and will only do so if there has been serious misconduct.”

So the good news is that courts are not looking to pierce the corporate veil. But that doesn’t mean it’s something you should take lightly. When it comes to protecting the corporate veil, it’s better to be proactive than reactive. Hiring a reputable law firm sooner rather than later is in your best interest.

The corporate veil is vital to personal assets

As a small business owner with a proprietary limited company or limited company, protecting the corporate veil is of the utmost importance. One of the most significant benefits of these types of business entities is that they provide personal liability protection to owners, officers, and shareholders.

In fact, personal liability protection is likely one of the primary reasons you chose this type of business structure. However, efforts to protect this corporate veil must be ongoing. It’s not a one-time, all-encompassing protection. Owners must make efforts to protect the corporate veil during the entire lifespan of the business entity.

Business owners should research the things they need to do to prevent piercing the veil and maintain personal asset protection. Consulting a lawyer could be in your best interest, as he or she could walk you through the specific requirements needed to protect the veil in each jurisdiction in which you operate.

Running a business

What is GMROI and how can retailers use it?

June 5, 2023

Running a business

What is a business audit and why should you do one?

June 5, 2023

Running a business

What are the 5 Project Management Processes?

June 5, 2023

Looking for something else?

Get QuickBooks

Smart features made for your business. We've got you covered.

See how it works

Help Me Choose

Use our product selector to find the best accounting software for you.

Choose your product

QuickBooks Support

Get help with QuickBooks. Find articles, video tutorials, and more.

Start learning

Stay up-to-date with the latest small business insights and trends!

Want more? Visit our tools and templates!

First Name*

Email*

What best describes you?*

By signing up you are agreeing to our terms and privacy policy.

- - QuickBooks reserves the right to change pricing, features, support and service at any time. Prices are in AUD and include GST. See our Terms of Service for further information.
  - Pricing: All prices are in AUD and include GST.
  - ProAdvisor Program: Please find the terms of our ProAdvisor program here.
  - 75% off for 6 months: For new subscribers, enjoy a 75% discount off the current monthly retail price for QuickBooks Self-Employed, QuickBooks Online Simple Start, QuickBooks Online Essentials or QuickBooks Online Plus for the first 6 months of your subscription (Offer). The discount will applied from the date of your enrolment and will continue for 6 months. From month 7, you will be charged the then current monthly retail price for your subscription. See current prices here. QuickBooks Payroll and QuickBooks Time prices are not eligible for any discount and will be invoiced separately according to your usage on a monthly basis during your subscription. Intuit reserves the right to request information to verify the eligibility of a purchaser of the Offer. Acceptance of such verification information is at the reasonable discretion of Intuit, which may revoke the Offer and impose a monthly cost for the subscription at the then current retail prices, at any time if it considers the purchaser is ineligible for the Offer.
  - 50% off for 12 months: For new subscribers, enjoy a 50% discount off the current monthly retail price for QuickBooks Self-Employed, QuickBooks Online Simple Start, QuickBooks Online Essentials or QuickBooks Online Plus for the first 12 months of your subscription (Offer). The discount will applied from the date of your enrolment and will continue for 12 months. From month 13, you will be charged the then current monthly retail price for your subscription. See current prices here. QuickBooks Payroll and QuickBooks Time prices are not eligible for any discount and will be invoiced separately according to your usage on a monthly basis during your subscription. Intuit reserves the right to request information to verify the eligibility of a purchaser of the Offer. Acceptance of such verification information is at the reasonable discretion of Intuit, which may revoke the Offer and impose a monthly cost for the subscription at the then current retail prices, at any time if it considers the purchaser is ineligible for the Offer.
  - 30% off for 3 months (Advanced): For new subscribers to QuickBooks Online Advanced, enjoy a 30% discount off the current monthly retail price for the first 3 months of your subscription (Offer). The discount will apply from the date of your enrolment and will continue for 3 months. From month 4, you will be charged the then current monthly retail price for your subscription. See current prices here. QuickBooks Payroll and QuickBooks Time prices are not eligible for any discount and will be invoiced separately according to your usage on a monthly basis during your subscription. Intuit reserves the right to request information to verify the eligibility of a purchaser of the Offer. Acceptance of such verification information is at the reasonable discretion of Intuit, which may revoke the Offer and impose a monthly cost for the subscription at the then current retail prices, at any time if it considers the purchaser is ineligible for the Offer.
  - 30% off for 12 months (Advanced): For new subscribers to QuickBooks Online Advanced, enjoy a 30% discount off the current monthly retail price for the first 12 months of your subscription (Offer). The discount will apply from the date of your enrolment and will continue for 12 months. From month 13, you will be charged the then current monthly retail price for your subscription. See current prices here. QuickBooks Payroll and QuickBooks Time prices are not eligible for any discount and will be invoiced separately according to your usage on a monthly basis during your subscription. Intuit reserves the right to request information to verify the eligibility of a purchaser of the Offer. Acceptance of such verification information is at the reasonable discretion of Intuit, which may revoke the Offer and impose a monthly cost for the subscription at the then current retail prices, at any time if it considers the purchaser is ineligible for the Offer.
  - 30% off for 3 months (existing subscribers): For existing QuickBooks subscribers who upgrade to QuickBooks Online Essentials, Plus or Advanced, enjoy a 30% discount off the current monthly retail price for 3 months of your subscription (Offer). The discount will be applied from the date you upgrade in-product and will continue for 3 months. From month 4, you will be charged the then current monthly retail price for your subscription. See current prices here. QuickBooks Payroll and QuickBooks Time services and prices are not eligible for any discount and will be invoiced separately according to your usage on a monthly basis during your subscription. Intuit reserves the right to request information to verify the eligibility of a purchaser of the Offer. Acceptance of such verification information is at the reasonable discretion of Intuit, which may revoke the Offer and impose a monthly cost for the subscription at the then current retail prices, at any time if it considers the purchaser is ineligible for the Offer.
  - Free Trial: First thirty (30) days of subscription to QuickBooks Online, QuickBooks Self-Employed and QuickBooks Payroll (including QuickBooks Advanced Payroll), starting from the date of enrolment, is free. During the free trial, you may pay any number of employees using QuickBooks Payroll free of charge. To continue using QuickBooks after your 30-day trial, you'll be asked to present a valid credit card for authorisation and you'll be charged monthly at the then-current fee for the service(s) you've selected.
  - QuickBooks Payroll powered by Employment Hero: Payroll services are offered by a third party, Employment Hero. QuickBooks Payroll is only accessible via QuickBooks Online subscriptions. You will be charged $5.00 (incl. GST) per month for each ‘active employee’ paid using QuickBooks Payroll. An ‘active employee’ is one who has been paid at least once in the billing month. For Advanced Payroll, there is an additional monthly subscription fee of $10 (incl GST). Pricing, terms and conditions, including service options, are subject to change.
  * Employment Hero was voted the leading payroll solution for SMBs <50 employees (Australian Payroll Association 2021 Payroll Benchmarking Study)
  - Customer support: Call or chat to an expert for QuickBooks Online Accountant, QuickBooks Simple Start, Essential, Plus, and Advanced or use in-product QB Assistant and chat for QuickBooks Self-Employed. You'll also find useful resources in the QuickBooks Community.
  - Compatible Devices: QuickBooks Online, QuickBooks Self-Employed and QuickBooks Payroll require a computer with Internet Explorer 10, Firefox, Chrome, or Safari 6 and an Internet connection (a high-speed connection is recommended). The QuickBooks Online mobile app works with iPhone, iPad, and Android phones and tablets. QuickBooks Online and QuickBooks Payroll are accessible on mobile browsers on iOS, Android, and Blackberry mobile devices. Devices sold separately; data plan required. QuickBooks Payroll cannot be used on the mobile apps. Not all features are available on the mobile apps and mobile browser. QuickBooks Online mobile access is included with your QuickBooks Online subscription at no additional cost. Data access is subject to cellular/internet provider network availability and occasional downtime due to system and server maintenance and events beyond your control. Product registration required.
  - Get paid faster: Get paid 2.5x faster invoicing with PayPal
  * PayPal and QuickBooks customers get paid on average in less than 5 days, which is over 7 days faster than the average for invoices that get paid with other payment methods. Data is for paid invoices that were created in QuickBooks in Australia between 23.05.22 and 23.11.22
  - Tax deductions: Tax deductions not guaranteed due to being subject to user data entry errors. Mileage calculation provided by the Australia Taxation Office - 85 cents per kilometre for the 2023-2024 income year. To a maximum of 5,000 business kilometres per car (Deductions are only applicable to cars)
  - Customer Service Awards: Excellence in Customer Service Award at the CX Australia Awards 2022
  - Multiple file discount: Multiple file discount applies to QuickBooks Australia customers only and valid when signing up for more than one QuickBooks Online subscription in one order. Further terms and conditions available here. Not applicable to QuickBooks Self Employed.
  - Reviews: GetApp, Capterra, Google Play Store, Apple App Store reviews as at date 08/01/24.
  - Cost per day claim: Based on a QuickBooks Simple Start Plan at its regular retail price of $25 per month and a 31 day month.
  - Cost per day claim (annual): Based on a QuickBooks Simple Start Plan at its regular retail price of $270 per year and a 365 day year.
  - Annual Billing: You may pay for your QuickBooks Online subscription on an annual, upfront basis to enjoy a discount on the current fees. If you use QuickBooks Payroll powered by Employment Hero, your payroll costs will still be charged monthly to your nominated payment method in accordance with your usage as set out here. If you cancel your QuickBooks Online subscription within the pre-paid 12 month period, you will not be eligible for a refund, but will retain full access to your QuickBooks Online subscription for the remainder of the 12-month period. Unless cancelled by you prior, your annual subscription will auto-renew on the 12 month anniversary of your sign-up date using the billing details you have given us. Discounts, prices, terms and conditions are subject to change.
  - Over 7 million customers: Based on number of global QB customers (ecosystem) (7.1m) worldwide as of October 2022.
  - Free Onboarding: Applicable to Buy Now subscriptions on QuickBooks Simple Start, Essentials and Plus plans. Not available for QuickBooks Self-Employed.
  - Save Hours: Save up to an average of 29 hours per month with QuickBooks.
  - * Based on a survey conducted by Intuit Australia Pty Ltd in September 2022. Time saving is in comparison to previous accounting method, based on 184 responses from customers that saw time savings.
  - Get access to QuickBooks Tax: ***Access QuickBooks Tax, powered by LodgeiT, by becoming a member of the QuickBooks ProAdvisor Program (it’s free to join). Find out more about the ProAdvisor Program here, including the terms of the QuickBooks Tax offer in the Program here.
  - QuickBooks Time Disclaimers & Offers for Australia: For Important pricing offers and disclaimers with further information, please see here.
  - *Full terms and conditions for access to QuickBooks Tax, powered by LodgeiT as part of the the Proadvisor Program can be found here. QuickBooks reserves the right to change pricing, features, support and service at any time.
  - **Intuit conducted a study involving 56 interviews with accountants and bookkeepers who used Books Review for BAS preparation between March to December 2021 and found that when using Books Review, participants reduced the time spent preparing their clients BAS Reports by around 40%.
  - Our Terms of Service apply to all QuickBooks Online subscriptions. Please review them carefully.

What is the corporate veil and what happens if you pierce it?

What is the corporate veil?

What is piercing the corporate veil?

What constitutes piercing the corporate veil?

What other actions could pierce the corporate veil?

Grow Your Business with QuickBooks

Protecting the corporate veil

When to hire a lawyer

The corporate veil is vital to personal assets

Related Articles

Looking for something else?

Get QuickBooks

Help Me Choose

QuickBooks Support

Stay up-to-date with the latest small business insights and trends!