In a case involving a lack of corporate formalities, among other things, the U.S. 8th Circuit Court of Appeals recently ruled it appropriate to pierce the corporate veil in the case of National Labor Relations Board v. Bolivar-Tees, Inc., et al. Involved were four U.S. and Mexican corporations. The result was to hold the owners of the corporations personally liable.
The company owners had transferred money between the corporations to hide them from creditors. They also used corporate monies for personal expenses. That is termed "commingling funds".
The court also opined, "Heller and the corporations readily commingled funds, failed to maintain adequate corporate records, disregarded corporate legal formalities, and failed to maintain an arm’s-length relationship. . . . Heller disposed of Bolivar’s corporate assets without fair consideration.” (Emphasis added.) Therefore, substantial evidence exists to support a finding that adherence to the corporate fiction would sanction a fraud and lead to the evasion of a legal obligation.”
- NLRB v. Bolivar-Tees, Inc., Case No.07-2334 (8th Cir. June 4, 2008).
You can read the entire case here. (Note: sometimes links go away. If you find this link is inactive, offline, or 404, you can search Google using the court citation above.)
Lack of Corporate Formalities
There's those terms again:
"...readily commingled funds..."
"...failed to maintain adequate corporate records..."
"...disregarded corporate legal formalities..."
"...failed to maintain an arm’s-length relationship..."
If Heller & Cos. had a good reason for moving funds among their companies, they could have entered it in the corporate minutes. A simple resolution showing their business purpose and intention for the transactions would suffice. Without that kind of evidence, though, the court had to rule on the facts as they construed them. There was no substantial argument to the contrary.
Take a lesson from this case. Keep good corporate records and run your company as a separate legal entity. Or else...YOU LOSE.
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