The Hitchhiker's Guide to Protecting Against Reverse Corporate Veil Piercing
By: Alan Williams, 2L, Journal Staff Member
In an age where corporate profits have never been higher, wise corporate leaders must always be mindful of judicial equity doctrines that seek to discard the corporate form, and the limited liability that comes with it, in the name of finding relief for plaintiffs. Check out a couple articles form JDSupra here and here to see more of what I am talking about.
One such doctrine is reverse piercing of the corporate veil. What is reverse piercing of the corporate veil, you may ask? Well, Kathryn Hespe’s article entitled Preserving Entity Shielding: How Corporations Should Respond to Reverse Piercing of the Corporate Veil, which is published in the Journal's Volume 14, Issue 1, describes it as a judicial equity doctrine in which liability is imposed upon a corporation for the “sins of the shareholders.” Now, obviously, when the doctrine of reverse piercing of the corporate veil is employed against a corporation, this can have a “huge impact on corporate structure and financial planning." Yet, what are wise corporate leaders, eager to avoid reverse corporate veil piercing scenarios to do? How can they shield the assets of the corporations that they manage from being re-appropriated through reverse corporate veil piercing? Well, as Hespe smartly notes, there are both several options available to corporations for dealing with reverse veil piercing litigation, and several steps that such corporations can take before and after such litigation has commenced.
However, Hespe’s article isn’t just a travel guide for corporations seeking to navigate the hazardous waters of reverse corporate veil piercing situations; at times, Hespe almost provides a sort of “cheat sheet” for corporate leaders eager to make a court less likely to reverse pierce the corporate veil all together.
In the end, as corporate profits continue to climb, reverse corporate veil piercing continues to be an incredibly attractive option for those plaintiffs that are eager to reverse pierce the corporate veil whenever defendant-shareholders just don’t have the cash on hand to pay their personal liabilities. If corporate leaders truly wish to protect the assets of the corporations that they manage, then they would be wise to listen to what Hespe has to say.
Posted: March 29, 2014.