What Happens If a Company Fails to Take Legal Steps After Incorporating?

A recent LawTrades user asked: What happens if a company fails to take the necessary legal Steps they should take after registering a C-Corp in Delaware?

Let’s start by saying that you should seek legal advice from a business attorney as soon as possible. The second thing that comes to mind regarding your question is the principle “piercing the corporate veil.”

Piercing the corporate veil occurs when a court sets aside limited liability and hold a corporation’s shareholders (SHs) or directors personally liable when it comes to the conclusion that the corporation was merely an alter ego of the SHs/directors. At this point, the wrongful SHs/ directors are treated as if they are agents of the corporation. A major factor used to justify piercing the veil is when the SHs/directors deviate from corporate formalities. Other factors include:

  • Commingling the corporation’s funds with your own personal banking / credit accounts
  • Shareholders are holding the corporation as their own (lack of substantive separation)
  • A small number of SHs, who have an active hand in management
  • Purposeful undercapitalization

If any of those factors apply to your corporation then you should probably contact an attorney. 

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