“Piercing the Corporate Veil” refers to an attempt by a Plaintiff in a lawsuit to obtain money from a shareholder, officer or director of a corporation or an L.L.C. for a lawsuit brought against the corporation or the L.L.C. This is an exception to the general rule that allows these business entities to shield entities and individuals that are involved with them from liability.
In 1986, the Texas Supreme Court issued an opinion in Castleberry v. Branscum, 721 S.W.2d 270 (Tex. 1986) that gave broad and expansive opportuniites to plaintiffs to pierce the corporate veil. This decision caused quite a level of concern among businesses, corporations and many wealthy individuals that rely upon the protections to their personal wealth that the corporate form provided.
The Castleberry decision was quickly addressed by the Texas legislature. The Texas legislature passed a number of laws which strengthened the protections of shareholders, directors and officers from corporate debts and judgments. These are currently codified in Article 2.21 of the Texas Business Corporation Act.
There are a number of factors which Texas courts consider when determining whether or not the corporate veil may be pierced. These are:
- Similar Business Names,
- Same Employees,
- Same Shareholders,
- Same Offices,
- Same Officers,
- Same or Similar Record Keeping,
- Employees of Entity Providing Services to the Other,
- Same Telephone Numbers,
- Centralized or Similar Accounting,
- One Entity Paying Employees of the Other and
- Money Transfers between Entities
The business entity of a Limited Liability Company is relatively new in Texas. There have been some cases that discuss the availability of a “Corporate Veil” in the case of an L.L.C. In Texas, L.L.C.s generally have the same protections from “Veil Piercing” that are available to corporations.
However, there are reasons that an L.L.C. should be even more aware of the possibilities of having their veil pierced than a corporation. To begin with, L.L.C.s are commonly less formally organized than corporations. This leaves them more susceptible to veil piercing than corporations.
Also, it is important for an L.L.C. to be aware that not every state grants L.L.C.s the same protections from veil piercing that they grant traditional corporations. Some states offer less protections from veil piercing for L.L.C.s and some states offer none. No L.L.C. can be sure that they will not be sued in another state. Also, because of these reasons it is not unusual for a plaintiff to explore the possibility of piercing the veil of an L.L.C. more aggressively than they might in the case of a corporation.