WORRIED ABOUT PERSONAL LIABILITY FOR YOUR BUSINESS DEBT?
Posted on January 13th, 2009
If your business is incorporated and you have not personally guaranteed your business debt, business creditors can only pursue you personally, if they can “pierce the corporate veil.” The long standing test in Ohio to “pierce the corporate veil” was: (1) domination and control over the corporation by those to be held liable is so complete that the corporation has no separate mind, will, or existence of its own; (2) that domination and control was used to commit fraud or wrong or other dishonest or unjust act, and (3) injury or unjust loss resulted to the plaintiff from such control and wrong.* Recently, the Supreme Court in Dombroski v. WellPoint, Inc., Slip Opinion No. 2008-Ohio-4827 modified this three pronged test. The Court found that for piercing the corporate veil, the creditor must demonstrate that the shareholder exercised control over the corporation in such a manner as to commit fraud, an illegal act, or a similarly unlawful act. “Courts should apply this limited expansion cautiously toward the goal of piercing the corporate veil only in instances of extreme shareholder misconduct.” Accordingly, piercing the corporate veil can no longer occur when the action by the individual shareholder is simply unjust or inequitable. If your business is not incorporated, you should consult with your legal counsel to consider the advantages of doing so.
Belvedere Condominium Unit Owners’ Assn. v. R.E. Roark Cos. Inc , 67 Ohio St 3d 274, 617 NE2d 1075, as expanded by appellate courts. (The Belvedere test had permitted actions against individual shareholders when their control of the corporation was exercised in such a way as to commit “fraud or an illegal act” against the plaintiff. Subsequent appellate decisions had broadened the definition of that phrase to include “other unjust or inequitable acts.”)This article was written by
Linda J. Lawrence
LAWRENCE LAW OFFICE
24 W. William St.
Delaware, OH 43015
740-362-1919
This publication is not intended to provide legal advice on specific subjects. The resolution of legal issues depends upon the specific facts of a particular situation and the laws involved.
