By: Joe H. Dickerson, CFE, CFI
To reach assets for judgment enforcement that are held in a corporation, you generally either pierce the corporate veil or prove the assets were fraudulently conveyed.
Piercing the corporate veil penetrates the corporate veil and imposes liability on individual shareholders for the obligations of the corporation. Individual liability is appropriate when the corporation is merely the alter-ego of the shareholder and the corporate structure is used to perpetuate a wrong.
An alter-ego relationship exists when there is such a unity of interest that the separate personalities of the corporation and the owner no longer exists, and the corporation is a mere instrumentality for the transactions of the shareholders’ own affairs.
QUESTIONS THAT MUST BE CONSIDERED
- Is the corporation operated as a distinct business entity?
- Are funds and assets co-mingled?
- Are adequate corporate records maintained?
- Do the nature and form of the entities’ ownership and control facilitate misuse by an insider?
- Is the business thinly capitalized?
- Is the corporation used as a “mere shell?”
- Do shareholders disregard legal formalities?
- Are corporate funds or assets used for non-corporate purposes?
- No bank account
- No written by-laws
- No financial statements
- Failure to provide written notice of board meetings to directors
- No minutes of board meetings
- Stock certificates never used
- Directors removed or added at will
- Stockholder uses corporate funds for personal debt
The Good News About Fraudulent Conveyances/Transfers
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By: Joe H. Dickerson, CFE
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