What is the scope of the corporate veil and how does it affect creditors?
The corporate veil is a legal concept in business transaction law that establishes a separation between the company and its owners, making the business an entity unto itself. In Texas, this concept provides corporations, limited liability companies, and other business structures with a layer of protection from personal liability. The corporate veil limits the scope of creditors’ rights and remedies should the business be unable to pay its debts. Generally, the veil will apply when a company’s owners, directors, or officers are acting in accordance with applicable laws, the company’s governing documents, and in good faith. This means that creditors are owed money by the company, not the owners or officers of the company. This prevents creditors from pursuing the personal assets of the owners or officers if the company does not pay its debt. However, if the veil is “pierced” or deemed invalid, creditors may go after the personal assets of the owners or officers of the company to satisfy any debts. In other words, the personal assets of the company’s owners or officers may become liable for the company’s debts. This is generally done when the company’s officers or owners act inappropriately, such as commingling funds, or acting in bad faith. In summary, the corporate veil is a legal concept that limits a creditor’s right to pursue the personal assets of company owners and officers. However, it may be pierced when the company’s owners, directors, or officers act inappropriately.
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