Written By Thomas Horgan
Piercing the corporate veil is a legal concept that allows a court to hold the owners of a corporation personally liable for the actions of the corporation. This can be a powerful tool for creditors and other individuals who have been wronged by a corporation, as it allows them to seek compensation from the individuals who are ultimately responsible for the actions of the company. In Nebraska, piercing the corporate veil is not a straightforward process, and it requires a careful analysis of the specific circumstances of the case.
Piercing the Corporate Veil
Nebraska corporate law is the body of laws that govern the formation and operation of corporations in the state of Nebraska. These laws set out the rules and procedures for forming a corporation, electing directors, issuing stock, and other important aspects of corporate governance.
Limited Liability Company (LLC)
One of the key features of Nebraska business entity law is the concept of limited liability. Under the Nebraska Uniform Limited Liability Company Act, the debts, obligations, and other liabilities of an LLC belong solely to the company, and the owners of an LLC, known as members, are not personally liable for them merely because they are members (Neb. Rev. Stat. § 21-129). Instead, the company itself is responsible for paying its debts and fulfilling its obligations. This provides a degree of protection to the members, and the Act provides that an LLC’s failure to observe particular formalities is not, by itself, a ground for imposing personal liability on its members or managers (Neb. Rev. Stat. § 21-129).
Forming a Corporation: Articles of Incorporation
In order to form a corporation in Nebraska, an individual or group of individuals must file articles of incorporation with the state. The articles of incorporation must include certain information, such as the name of the corporation, the number of shares the corporation is authorized to issue (and, if there is more than one class, the number of shares in each class), the street address of the initial registered office and the name of the initial registered agent, and the name and address of each incorporator. A statement of purpose is optional. Once the articles of incorporation are filed and approved, the corporation is considered to be legally formed.
Rules and Procedures
Once a corporation is formed, it is required to follow certain procedures and rules in order to remain in good standing. This includes holding annual meetings of shareholders and directors, keeping accurate records and financial statements, and following the provisions of the corporation’s bylaws. Nebraska corporate law also requires the articles of incorporation to authorize one or more classes of shares that together have unlimited voting rights and one or more classes that together are entitled to the net assets of the corporation on dissolution, and it sets rules for issuing and reacquiring shares.
In addition to the rules and procedures that apply to all corporations in Nebraska, there are also specific laws that apply to certain types of corporations. For example, nonprofit corporations, which are formed to pursue charitable or educational purposes, are subject to different rules and procedures than for-profit corporations.
Piercing the Corporate Veil in Nebraska
In order to pierce the corporate veil in Nebraska, a creditor or other individual must prove that the corporation was under the actual control of the shareholder and that the shareholder exercised that control to commit a fraud or other wrong in contravention of the plaintiff’s rights. Christian v. Smith, 276 Neb. 867, 759 N.W.2d 447 (2008).
This can be difficult to prove, as it requires a detailed examination of the inner workings of the corporation, including the level of separation between the owners and the company and the degree to which the owners have used the company to shield themselves from liability.
The party seeking to pierce the veil has the burden to show by a preponderance of the evidence that the corporate identity must be disregarded to prevent fraud or injustice to the plaintiff.
Showing that one person is the sole shareholder, officer, and director of the corporation is not, by itself, enough.
Important Considerations
One important factor that the courts in Nebraska will consider when deciding whether to pierce the corporate veil is the level of separation between the owners and the corporation. If the owners have failed to maintain a clear separation between their personal and business affairs, it may be easier to pierce the corporate veil.
This can include things like commingling personal and business funds, failing to maintain separate bank accounts, and using company assets for personal gain.
Another factor that the courts may consider is the degree to which the owners have used the corporation as a shield to protect themselves from liability. If the owners have used the corporation to avoid paying debts or to evade taxes, for example, this may support a finding that the corporation was used to commit a fraud or other wrong against creditors and could make it easier to pierce the corporate veil.
It is important to note that piercing the corporate veil is not a routine or automatic process in Nebraska. The courts will carefully consider the specific circumstances of each case, and they will weigh the various factors that are relevant to the issue of personal liability. In general, the courts will be more likely to pierce the corporate veil in cases where there is clear evidence of fraud or wrongdoing on the part of the owners of the corporation.
Have you been wronged? Hire an Experienced Omaha Attorney
If you are a creditor or other individual who has been wronged by a corporation and you are considering seeking to pierce the corporate veil, it is important to consult with an experienced attorney. An attorney can help you understand your rights and options under Nebraska law and can represent you in court if necessary.
While piercing the corporate veil can be a powerful tool for holding the owners of a corporation accountable, it is not always easy to do, and it requires a careful analysis of the specific circumstances of the case.
Frequently Asked Questions
What does piercing the corporate veil mean?
Piercing the corporate veil lets a court hold a corporation’s owners personally liable for the corporation’s obligations. It is an exception to the ordinary rule that shareholders are not personally liable for corporate debts. Creditors and others harmed by a corporation use it to reach the individuals responsible.
When will a Nebraska court pierce the corporate veil?
A Nebraska court may pierce the veil when the corporation is the owners’ alter ego or is used to commit fraud or other wrongdoing. Courts weigh the specific circumstances of each case. Clear evidence of fraud or wrongdoing by the owners makes piercing more likely.
What factors do courts consider when piercing the corporate veil in Nebraska?
One key factor is whether the owners kept their personal and business affairs separate. Commingling funds, failing to keep separate bank accounts, and using company assets for personal gain all weigh toward piercing. Courts also look at whether the owners used the corporation as a shield to avoid debts or evade taxes.
Is it hard to pierce the corporate veil in Nebraska?
Yes. Piercing is not routine or automatic, and it requires a detailed examination of how the corporation actually operated. Ordinary negligence or carelessness by the owners is not enough.
Horgan Law LLC | Omaha, NE
For guidance on your situation, contact Horgan Law LLC at 402-965-0652 or through our contact page.
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