Piercing the Corporate Veil
Generally speaking, a Maryland corporation provides protection to individuals from personal liability associated with debts of the corporate entity. When a plaintiff or creditor is able to go after an owner’s personal assets, it is commonly called “piercing the corporate veil”.
Maryland law is crystalline that the corporate entity will be disregarded only when necessary to prevent fraud or to enforce a paramount equity. The mere fact that all or almost all of the corporate stock is owned by one individual or a few individuals will not afford sufficient grounds for disregarding corporateness
If substantial ownership of the stock of a corporation in a single individual is combined with other factors which support disregarding the corporation on grounds of fundamental equity, a court may pierce the corporate veil. Factors weighed in an analysis to determine whether a corporation is the ‘alter ego’ or instrumentality of the individual stockholder are:
• Whether the corporation was grossly under-capitalized
• Corporation’s failure to observe corporate formalities
• Non-payment of dividends
• Corporation’s insolvency
• Dominant stockholder’s siphoning of corporate funds
• Non-functioning of officers or directors
• Absence of corporate records
• Corporation’s status as a facade for the stockholders’ operations
For further information please contact the business litigation specialists of STSW.