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Piercing the Corporate Veil Revisited

—RMZ

The First District of the Illinois Appellate Court has broadened the potential individual liability for a corporation’s debts, even in cases where the individual is not an officer, director, employee, or shareholder of the corporation.

A corporation (including a limited liability company) is an entity that is generally separate and distinct from its employees, officers, directors, and shareholders.  Traditionally the primary purpose of corporations has been to insulate individuals from personal liability for the corporation’s debts and other liabilities. Illinois courts have been somewhat reluctant in the past to “pierce the corporate veil” and charge individuals with the debts or liabilities of a corporation.  That traditional reluctance may be changing with the recent case of Buckley v. Abuzir, 8 N.E.3d 1166; 380 Ill. Dec 624 (1st Dist. 2014).

Illinois courts may pierce the veil where: (i) there is such a unity of interest and ownership that separate personalities of the corporation and the parties who compose it no longer exist, and (ii) circumstances such that the fiction of a separate corporation would promote injustice or inequitable circumstances.  Id. at 1170.  Traditionally, courts would most often consider piercing the corporate veil only with respect to shareholders, officers, and directors of the corporation. In Buckley however, the Court undertook a thorough analysis of state laws across the country and found that most allow veil piercing against non-shareholders as well.  Taking principles of equity into account, the Buckley court held that “the lack of shareholder status –and, indeed, lack of status as an officer director, or employee – does not preclude veil piercing” because equitable ownership may satisfy the unity of ownership prong of the traditional analysis.  Id.  The defendant in Buckley was potentially liable for corporate debts because he was in de facto control of the corporation despite not being a shareholder, officer, or director.  As a result of Buckley, even non-shareholders of a corporation are potentially liable to claims seeking to pierce the corporate veil.

The skilled and experienced attorneys at Roberts McGivney Zagotta LLC are well versed in the status of the law and are prepared to advise clients on the methods to limit personal liability for corporate debts and liabilities as much as possible.

The information in this article is for informational purposes only and does not constitute formal, legal advice.  Consult with one of the attorneys from Roberts McGivney Zagotta LLC for advice about your particular circumstance.