Did You Know? Piercing the Corporate Veil Applies to Limited Partnerships

By Fredrick P. Niemann, a NJ Parnership Law Attorney

When people create a corporation, limited liability company, or limited partnership as their business, they often do so to try and avoid personal liability. Generally, an owner, shareholder, or partner can’t be held personally liable for actions made by the company. One exception to this is the principle of “piercing the corporate veil”, which means that someone involved with the business can be held personally liable if the Court finds the business is not kept entirely separate from the person’s personal life. Until recently,  piercing the corporate veil principle applied only to corporations and LLCs, but the New Jersey Court of Appeals has stated otherwise.

In a recent case, the NJ State Appeals court extended the principle of piercing the corporate veil to limited partnerships, meaning that if it finds certain conditions are present, the limited partners CAN be held personally liable. New Jersey law creates a “safe harbor” for general partners, shareholders, etc. The Court stated that personal liability comes when a partner exceeds this safe harbor. Similar to all veil-piercing cases, the plaintiff must show that the partners co-mingled funds or some other evidence that the limited partnership was not truly separate from the partners personal accounts. The NJ Courts also allow piercing if a party can show the partnership was created for fraudulent purposes. This is not just applicable to general partners, but limited partners as well if a plaintiff can show that the limited partner actually dominated the partnership and used it in furtherance of injustice or fraud.

Keeping your business and personal life separate are key to avoiding personal liability. An experienced partnership law attorney can teach you the keys to avoiding personal liability for your partnership.  Please call Fredrick P. Niemann, Esq., a knowledgeable New Jersey partnership lawyer, today at 855-376-8291 or email him at fniemann@hnlawfirm.com/. He looks forward to hearing from you.

Posted in Business, Corporations, Partnerships and LLCs and tagged .