Although many companies seek protection from liability via complex corporate structures and the use of holding companies, such structures do not provide fool proof protection. In fact, both holding companies and corporate shareholders face potential liability, even under a complex corporate structure. Although, arguably, some wrongdoing is necessary to “pierce the corporate veil,” what constitutes wrongdoing has a variety of interpretations and often differs from one judge to the next.
Under Missouri law and in many other jurisdictions, piercing the corporate veil requires showing that (1) the shareholder exercised control over the corporate entity with respect to the transaction attacked; (2) the control was exercised for an improper purpose; and (3) the control and improper purpose proximately caused plaintiff’s injuries. Although the elements of a piercing claim may appear straightforward, in practice, the application of these elements presents complex fact and legal issues, especially for those unfamiliar with veil-piercing litigation. For example, Missouri law lays out at least 11 factors for consideration when determining whether a shareholder “controlled” a corporate entity. In addition, the proximate cause element of Missouri’s veil-piercing law is not common to all jurisdictions and, absent skilled representation, may not be given the emphasis it deserves.
Veil-piercing claims generally arise in two types of cases. The most common claim is based on allegations that shareholders undercapitalized the entity which owes obligations to those who deal with it. In such cases, legal action is often filed against shareholders to hold them responsible for obligations after the liability of the entity is determined. The piercing theory may also arise in claims where the shareholder controls, directs or substantially participates in the activities of the entity. A piercing the veil claim against shareholders on this theory is usually brought in the same action involving claims against the entity that is accused of wrongdoing.
Accordingly, having counsel familiar with the unique requirements surrounding Missouri’s and other state’s veil-piercing law is invaluable to any shareholder or holding company.
For information about veil-piercing issues, contact Dennis Palmer, business litigation attorney at dpalmer@stklaw.com or Mark Olthoff, business litigation attorney at .
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