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1 • 2008

Piercing the Corporate Veil: A Rare and Drastic Result

Piercing the corporate veil most often occurs when there are only a few shareholders who fail to observe corporate formalities. In Associated Vendors, Inc. v. Oakland Meat Co., Inc. , the Court reviewed the circumstances that most frequently lead to piercing the veil:

  • Commingling of funds and other assets, failure to segregate funds of separate entities, and the unauthorized diversion of corporate funds or assets to other than corporate uses;
  • The treatment by an individual of the assets of the corporation as his own;
  • The failure to obtain authority to issue stock or to subscribe to or issue the same;
  • The holding out by an individual that he is personally liable for the debts of the corporation;
  • The failure to maintain minutes or adequate corporate records, and the confusion of the records of the separate entities;
  • The identical equitable ownership in the two entities; the identification of the equitable owners thereof with the domination and control of the two entities; identification of the directors and officers of the two entities in the responsible supervision and management; sole ownership of all of the stock in a corporation by one individual or the members of a family;
  • The use of the same office or business location; the employment of the same employees and/or attorney;
  • The failure to adequately capitalize a corporation; the total absence of corporate assets, and undercapitalization;
  • The use of a corporation as a mere shell, instrumentality, or conduit for a single venture or the business of an individual or another corporation;
  • The concealment and misrepresentation of the identity of the responsible ownership, management and financial interest, or concealment of personal business activities;
  • The disregard of legal formalities and the failure to maintain arm’s length relationships among related entities;
  • The use of the corporate entity to procure labor, services, or merchandise for another person or entity;
  • The diversion of assets from a corporation by or to a stockholder or other person or entity, to the detriment of creditors, or the manipulation of assets and liabilities between entities so as to concentrate the assets in one and the liabilities in another;
  • The contracting with another with intent to avoid performance by use of a corporate entity as a shield against personal liability, or the use of a corporation as a subterfuge of illegal transactions;
  • The formation and use of a corporation to transfer to it the existing liability of another person or entity

Associated Vendors, Inc. v. Oakland Meat Co., Inc. (1962) 210 CA2d 825