When Business Owners Can Be Personally Liable (Piercing the Veil)

Are You Personally Liable? When Business Owners Lose Their Shield

You formed an LLC or corporation to protect your personal assets. But what if that shield isn’t holding?

Many business owners assume that forming an entity means automatic immunity from lawsuits or debts. But courts in New York and New Jersey can—and do—“pierce the corporate veil” to hold owners personally liable when certain red flags exist.

🔍 What Is the Corporate Veil?

The corporate veil refers to the legal separation between a business and its owners. It’s what protects your house, savings, and personal income if the business is sued.

But this protection isn’t bulletproof. It's a privilege that depends on your conduct—not just paperwork.

⚠️ When Courts Pierce the Veil

In NY and NJ, courts may hold business owners personally liable if:

  • The business is just an “alter ego” — no real separation
  • There’s commingling of personal and business funds
  • Required formalities (like records or filings) are ignored
  • Fraud or misuse of the entity is alleged

🧾 Example: Paying Your Rent with the Company Card

If you regularly use business funds to cover personal expenses, a creditor can argue the entity is a sham—and courts may agree.

🛡️ How to Protect the Shield

To keep the corporate veil intact:

  • Maintain a separate bank account
  • Sign contracts on behalf of the entity, not yourself
  • Document major decisions
  • File annual reports and follow state requirements
  • Avoid using business funds as personal piggy banks

🚨 Red Flags That Trigger Veil Piercing

Some of the biggest risk factors we see:

  • Unpaid payroll taxes or sales tax
  • No written operating agreement
  • Personal guarantees on business debts
  • Mixing business and personal income or expenses

✅ Final Takeaway

Forming an LLC or corporation is a great start. But it’s not enough. How you run the business determines whether your personal assets stay protected.

At JDE Law Firm, we help NY and NJ business owners preserve their limited liability—and defend against attempts to pierce the veil.

📅 Schedule a limited liability audit

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