By Fredrick P. Niemann, a NJ Business Attorney
Many NJ Business owners create corporations for the purpose of shielding themselves from personal liability. In New Jersey, businesses created in the form of a corporation do provide this shield, albeit subject to a certain exception. This exception is known as “piercing the corporate veil”, a tool that NJ Courts allow plaintiffs to use against owners and shareholders of NJ Businesses, holding them personally liable for their businesses’ actions under certain circumstances. NJ Courts do not have a specific formula for determining when piercing the corporate veil is appropriate, but instead will look at each case individually and determine whether the owners/shareholders used the business as a front to avoid liability.
A recent NJ Court case involved the question of whether or not the plaintiff was entitled to pierce the corporate veil of a business and sue the owner of the business directly. The Court looked at a number of factors, including the fact that their was no evidence that the business was purposely underfunded to avoid the financial risks associated with the business’ transactions, the fact that no evidence existed showing the business was created with a purpose to defraud it’s creditors, and the fact that there was no evidence that the owners had stripped the business of its assets that it should have had due to fear of a lawsuit. The NJ Court therefore held that the business was not a sham and the corporate veil could not be pierced.
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