Updating Your Corporate Records in PA May Protect Your Company From Liability Under Veil-Piercing ClaimsJune 2014 – Articles In the Zone
Many small to midsized Pennsylvania corporations often fail to update their corporate records in accordance with the Pennsylvania law. In this regard, we are suggest you engage legal counsel to assist you with this work.
Many businesses are feeling the impact of these challenging economic times. As a result of these pressures, we are seeing a noticeable increase in “piercing the corporate veil” claims being asserted by banks and other creditors against the shareholders of a debtor corporation. A “piercing the corporate veil” claim is a type of legal claim asserted by a creditor against the shareholders of a corporation, seeking to disregard the existence of the corporate entity and instead have the corporation’s shareholders held personally liable for the debts as the “alter ego” of the corporation, even if the shareholders would not otherwise be liable for those debts.
The issue of “piercing the corporate veil” is one of the most litigated issues in corporate law. There is no bright-line test as to whether such a claim has merit and instead the case is determined on the specific facts and circumstances presented. Among other factors considered in analyzing a “piercing the corporate veil” claim is whether or not the corporation has neglected the corporate formalities and protocols required under law, such as holding annual meetings to approve the appointments of officers and directors and to approve material corporate decisions and actions.
Under Pennsylvania corporate law, at least one meeting of the shareholders is required to be held in each calendar year for the election of directors and to approve other matters coming before the shareholders. Do you have records confirming that an annual corporate meeting has been held for your corporation for more than a year? Given the risks associated with not following the corporate formalities imposed under law, we recommend our clients undertake an annual assessment of their record-keeping and administrative protocols. We are available to advise you as to best practices in this regard.
Upon request, we can send you a checklist of these important items.