As a business owner, you have a lot on your plate. Something always needs your attention, from managing employees to staying on top of your finances. One aspect of running a corporation that can be easily overlooked, but is essential, is maintaining the corporate veil. This refers to the legal separation between a corporation’s interests and the personal interests of its owners, shareholders & officers. This separation is necessary if you don’t want to be held personally liable for corporate wrongdoing. One way to ensure that you maintain the corporate veil is by using a virtual office instead of your home address for your business. This avoids the appearance of impropriety and ensures there’s no co-mingling between your personal business and your corporation’s business.
What is the Corporate Veil?
The corporate veil is a legal concept that demands the separation of corporate finances, and its actions from the assets of its owners. Simply put, it protects the personal assets of shareholders and officers from being attached to lawsuits or claims against the corporation. To maintain this protection, some thresholds must be met. One threshold is that corporate operations and finances remain separate from personal affairs and finances. In other words, there is never a unity of interests between a corporation and its officers.
The courts may strip the corporation of this protection if the corporate veil is pierced. This means that the assets of corporate officers can be seized to pay for legal damages, debts, and other financial obligations of the business, something no business owner wants.
How is the Corporate Veil Pierced?
There are a few different ways the corporate veil can be pierced. We will focus on the measure the courts call “alter ego liability.” Alter ego liability is found when a court determines that a business and its owners are essentially the same entity. When a court finds alter ego liability, they find a unity of interest between the corporation’s interests and the interest of its shareholders/officers. For example, the officers use the corporation as a shell company for their personal gain. In this case, a court may strip the corporation of its limited liability protection.
Several factors can contribute to a court finding alter ego liability, including the co-commingling of personal and business finances, failure to comply with corporate formalities, or using personal assets to pay for business expenses and vice versa. These actions blur the lines, making it more likely that a court will find the corporate veil pierced.
Why Using Your Home Address Can Pierce the Corporate Veil
Using your home address as your corporate address may effectively blur the lines between your personal life and your business and creates an appearance of impropriety. This may make it challenging to maintain corporate veil protection and increase the likelihood of alter ego liability if a lawsuit or claim against your corporation exists.
For example, let’s say you’re sued for breach of contract. Suppose you use your home address for your corporate address. In this case, the plaintiff’s lawyers may argue that your business is merely a shell company and that you, the corporate officer, and your business are essentially the same entity, thereby holding you personally liable for any corporate wrongdoing or debt. This argument is more compelling when personal and business finances are commingled.
In addition, if you use your home address for your business, you may be more likely to use corporate assets to pay for personal expenses. For example, you pay your home’s electric bill out of your company checking account, or you might use your personal credit card to pay for business expenses or use your personal bank account to deposit business income.
Why Using a Virtual Office is the Best Choice
To minimize the risk of piercing the corporate veil, you must create a clear separation between your business and yourself. A virtual office is the best way to do this without breaking the bank. A virtual office offers more than a business address for your company. It ensures that your corporation is a separate entity from your personal interests. Virtual offices provide privacy protection, as well as create an aura of professionalism for your new venture. They offer flexibility, which allows business owners to work from anywhere while maintaining a professional client-facing image and a clear separation of business and personal interests.
Opus Virtual Offices
Piercing the corporate veil is a serious legal doctrine that can expose shareholders’ personal assets to liability. With a virtual office, corporations and their shareholders/officers can enjoy many benefits while reducing the risk of losing their limited liability protection simply because it will ensure a separation of personal and professional interests.
Opus Virtual Offices is a B2B provider that offers administrative support and a host of virtual services. With features such as digital mail sorting, real-time call log, parcel post receiving, live reception, and meeting rooms on demand, it is the clear choice among virtual office providers. Make the choice that serves your corporation best, use a virtual office, and don’t expose your corporation to risk.
Posted on May 3, 2023 by Melanie Rauch