The Corporate Veil – How to Ensure the Protection of Its Executives

The corporate veil is what protects the executives of a company from being subject to lawsuit based on the actions of the corporation as a whole. This means that if the corporation is being sued for any reason, the individuals cannot be subject to the lawsuit. There are, however, exceptions to this law. As a corporate executive, it is important to understand that circumstances that can allow this corporate veil to be “pierced” and how to take precautions against this ever happening.

First and foremost, the corporation needs to maintain its legal status as a separate entity. Ensuring that finances and activities are separated is crucial to maintaining this legal status.

If the corporation ceases to pay dividends or taxes in a timely fashion, this can open up the corporate veil and the individual executives could be held financially responsible. For this reason, fastidious attention to company records and legal contracts must be kept at all times. If anything slips through the cracks, it could mean that lawsuits could potentially filter through to individuals as opposed to the corporation itself.

For more information on protecting your corporation and its members, please visit the TechInsurance Small Business Center.