Piercing the Corporate Veil in Missouri: Personal Liability for Corporate Shareholders and LLC Members

The subject of piercing the corporate veil to attain personal liability against corporate shareholders and LLC members in Missouri is a frequent topic of conversation in our business-transactions and business-litigation law practice at The Flynn Law Firm.   The most fundamental premise of incorporating a business (or organizing a limited liability company), is to protect the business owners from being held personally liable for debts the company incurs.  That's not to say that corporate shareholders or LLC members can't be held liable.  But the general rule is that they are not liable.

But there are certain circumstances when a corporate shareholder or LLC member may be held liable.  This is what is typically called "piercing the corporate veil."  The doctrine of piercing the corporate veil is used to hold a person liable for corporate acts.  In Missouri, there are only very narrow circumstances whereby an owner can be held liable for the company's debts (and it does need to be an owner–just being a corporate director, officer, or manager isn't enough).  One such circumstance is where the corporate entity is used specifically as a mechanism to defraud a creditor.  Another circumstance where the corporation or LLC veil may be pierced is where the business was undercapitalized from the beginning (assets disproportionately small compared to known risks), or where company assets are stripped to avoid creditors' demands.  Where a corporation or LLC is so dominated by someone so as to be considered a "mere instrumentality" of that person, to the point where the person and business are indistinguishable, Missouri courts will pierce the corporate veil.

In order to pierce the corporate veil in Missouri, the plaintiff (i.e., the injured party) must show that the owner exercised complete control over the corporation or LLC.  Mere majority ownership is not enough.  Interestingly, neither is complete stock ownership by itself enough to show "complete control."  It has to be complete domination by the corporate shareholder or LLC member, not only of finances, but of business policy and practices, especially with regard to the transactions at issue.  This is also referred to as an "alter ego" theory (i.e., that the corporate was an alter ego of a person, that for all intents and purposes it didn't have its own identity).  Veil piercing also requires that the complete domination/control to have been used to commit a fraud or other type of wrong, to violate a statutory or other legal duty, or to commit a wrongful act that violates the plaintiff's rights.  And, of course, that conduct must have caused the plaintiff's injury.

 

 

 

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