The Ohio Court of Appeals (10th District, Franklin County) recently provided some very specific guidance about "piercing the corproate veil" in Ohio. The case is Lind Stoneworks, Ltd. v. Top Surface, Inc., 194 Ohio App.3d 98 (10th District 2011).
The trial court held a corporation and its sole owner liable for a corporate debt. The trial court "pierced the corporate veil" and found the owner to be personally liable. The owner admitted that the corporation had no officers, no directors, and had apparently failed to follow some other corporate formalities.
The Court of Appeals held that in this case, these facts alone were not sufficient to impose personal liability on the owner. The appeals court basically found that there was insufficient evidence to pierce the corporate veil. The decision of the trial court was reversed and the case was remanded for further consideration.
Many factors can influence whether or not personal liability will be imposed on a corporation owners. The Court of Appeals noted that in general, shareholders, officers and directors are not liable for a corporation’s debts.
A limited liability company does not have as many required formalities as a corporation. Nevertheless, it should still have a separate bank account and otherwise be treated as a separate entity.
The message from this recent Ohio court decision is clear: make sure that you follow basic formalities with your corporation, limited liability company, or other business entity. This is relatively easy to do; and failing to do it can completely defeat the purpose of forming the entity in the first place.