When you establish a company by forming a limited liability company (LLC) 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.