The Corporate Veil: Protecting Personal Assets
What Is the Corporate Veil?
The corporate veil is the legal separation between a business entity (corporation, LLC) and its owners. This separation means that business debts and liabilities belong to the entity, not to the individual owners. Their personal assets — homes, bank accounts, investments — are generally protected from business creditors.
This liability protection is one of the primary reasons people form corporations and LLCs.
How the Corporate Veil Works
- The business entity is treated as a separate legal "person"
- The entity can own property, enter contracts, and incur debts in its own name
- Owners are typically only at risk for the amount they invested in the business
- Business creditors can generally only reach business assets, not personal ones
When the Corporate Veil Appears in Contracts
Contracts may reference the corporate veil in several ways:
- Entity representations — The contract confirms that the signing party is an authorized representative of the entity, not acting in a personal capacity
- No personal liability clauses — Explicitly state that the entity's obligations do not create personal liability for owners or officers
- Personal guarantee provisions — Deliberately bypass the corporate veil by requiring individual liability (see our guide on personal guarantees)
- Indemnification from individuals — Some contracts seek indemnification from both the entity and its principals
Maintaining the Corporate Veil
To preserve liability protection, business owners should:
- Keep personal and business finances completely separate
- Maintain proper corporate records and minutes
- Adequately capitalize the business
- Follow all corporate formalities required by state law
- Sign contracts in the entity's name, not personally
- Use the correct entity name and designation on all documents
When to Consult a Lawyer
If a contract asks you to personally guarantee obligations, waive entity protections, or take on liability beyond your entity's capacity, consider consulting a business attorney about the impact on your corporate veil protections.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.