Tuesday, May 22, 2018
I was browsing through some recent veil piercing cases (because that's how I roll), and I came across this gem:
[I]t is unclear that merely using a corporation to limit personal liability rises to the level of fraud required to pierce the corporate veil.
Indagro SA v. Nilva, No. 16-3226, 2018 WL 2068660, at *3 (3d Cir. May 3, 2018). Given that limited liability is one of the primary benefits of incorporation, I think it is at least implied that using a corporation to limit personal liability is not fraud at all.
Moreover, the corporation at issue was a New Jersey corporation, and the state law provides:
N.J. Stat. Ann. § 14A:5-30 (West). This is pretty unequivocal. I get that fraud may be one of the acts that could give rise to personal liability, but the use of an entity to limit personal liability, when that is a core facet of the entity, is some pretty serious attempted bootstrapping.
The case gets it right, in the end, but still, I had to point this out. To imply that it could be fraud to use a corporation for the purpose of limiting personal liability, without anything more, is simply incorrect.