![]() ![]() Hubbard Enterprises, 388 F.3d 138 (5th Cir. Historically, Texas law permitted piercing the corporate veil when “(1) the corporation is the alter ego of its owners and/or shareholders (2) the corporation is used for illegal purposes (3) the corporation is used as a sham to perpetrate a fraud.” Rimade Ltd. Texas is an exception with its “actual fraud rule.” Nationally, most states allow some sort of veil-piercing. Section 101.114 of the Business Organizations Code (“BOC”) states: “Except as and to the extent the company agreement specifically provides otherwise, a member or manager is not liable for a debt, obligation, or liability of a limited liability company, including a debt, obligation, or liability under a judgment, decree, or order of a court.” Piercing the veil is an equitable remedy that is available only in exceptional circumstances. Knowing when this might or might not occur is an important factor in asset protection since a piercing event defeats the central purpose of forming an entity in the first place. This article addresses “piercing the veil,” which refers to the limited circumstances under which the liability shield of a registered legal entity (an LLC or corporation) may be pierced and the individuals behind that entity held personally accountable.
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