What is the scope of the corporate veil and how does it affect creditors?
The corporate veil refers to a legal concept which protects the shareholders and directors of a corporation from personal liability for the debts of the corporation. In Louisiana, the corporate veil is created when an entity is registered as a corporation, and is "pierced" when certain conditions are met which show that the entity is not a real corporation and hence the shareholders and directors are not adequately shielded from personal liability. Creditors in Louisiana may be affected by the corporate veil when a court determines that the corporate veil must be pierced and the shareholders and directors do become personally liable for the corporation’s debts. This determination is usually made when the corporation has not been adequately funded, or when it is not being operated as a separate entity from its shareholders or directors. If the corporate veil is pierced, then the creditors may seek to collect their debt from the shareholders and directors personally, even if the corporation does not have the funds to pay the debt. In order to protect the corporate veil and prevent its piercing, corporations in Louisiana must be adequately funded, and the activities of the corporation must be separate and distinct from those of its shareholders and directors. Additionally, the shareholders and directors should obtain adequate advice and consult on corporate management matters in order to make sure that the corporation remains a separate legal entity, and that the corporate veil is not pierced.
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