Piercing The Corporate Veil In Delaware
As a Delaware attorney who helps clients form corporations, one of my first questions when someone says they want to incorporate is “why?” And the answer that’s most frequently given is “I want to protect myself from personal liability.” That’s a legitimate reason, but we’ll come back to this in just a moment.
It’s incredibly simple to form a corporation in the State of Delaware. Download a 1-page form from the Division of Corporations, fill it out, and send it in along with your check That’s all it takes. But it’s also simple to walk across the street with your eyes closed. All you have to do is step off the curb and start walking. The problem with walking with your eyes closed is that you might not get to the other side. And the problem with incorporating without a Delaware attorney is that you might not protect yourself from personal liability.
Corporations are required to follow certain formalities. Here in Delaware, our law provides a lot of flexibility to make these formalities as easy as possible. But, if you don’t have bylaws, you never hold corporate meetings, you have no corporate minutes, you pay personal debts out of your corporate checking account, and you do other things that unfairly shield your company’s assets from its creditors, you run the risk of being held personally responsible for your corporation’s debts.
There’s no specific formula that the court in Delaware applies in these types of cases. However, if the court finds that in the interests of justice, your failure to follow corporate formalities requires that you be held personally liable, the court will do so by piercing the corporate veil.
Creating a Delaware corporation is easy, but without proper advice and a push in the right direction, you’re taking a big risk if you try doing this without a Delaware attorney’s help.
