Piercing The Corporate Veil In Ohio
Shareholders are usually not liable for the debts of the corporation. In a simple breach of contract case, creditors may only be able to pursue the corporation. However, creditors of a corporation may sue the shareholders directly if the following are true: (1) control over the corporation by those held to be liable was so complete that the corporation has no separate mind, will, or existence of its own; (2) control over the corporation by those to be held liable was exercised in such a manner to commit fraud or an illegal act against the person seeking to disregard the corporate entity; and (3) injury or unjust loss resulted to the creditors from such control and wrong. This is otherwise known as piercing the corporate veil in Ohio.
The first factor is known as the alter ego doctrine. It basically looks to see if the individual and the corporation are essentially one and the same. Some of the factors include: whether corporate formalities were observed; whether corporate records were kept; whether corporate funds were mixed or commingled with personal funds; and whether corporate property was used for a personal purpose. Using your personal checking account to take in funds and pay the debts of the corporation, as well as using the company vehicle to take the kids to baseball practice may run afoul of this factor.
The second factor is fraud in disregard of the corporate entity. Opening up and transferring assets to a new corporation, leaving the original corporation an empty shell incapable of paying any judgment can meet this standard.
The final factor is injury or loss to the creditor. Being left with an empty shell of a corporation after transferring assets to a new corporation can make it impossible for a creditor to collect a judgment. This meets the standard of unjust loss.
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