Reverse Piercing of the Corporate Veil

A hallmark of corporations and limited liability companies (LLC) is that generally a business liability will not result in the personal liability of corporate shareholders or LLC members. An exception to this rule is the piercing the corporate veil theory, which disregards the shield of liability when a business is a mere alter ego of the owner(s). Under the alter ego rule, when a corporation is so dominated by a person as to be a mere instrument of that person and is indistinct from the person controlling it, then the court will disregard the corporate form if to retain it would result in injustice. Saidawi v. Giovanni’s Little Place, Inc., 987 S.W.2d 501, 504 (Mo. Ct. App. 1999). As such, a business liability can in certain circumstances be turned into personal liability. But is the opposite true? Can personal liability of the owners be turned into a business liability?
Reverse piercing the corporate veil can theoretically occur, but the case law is not nearly as developed. Specifically, reverse piercing refers to a creditor of the shareholder/member trying to hold the corporation/LLC liable. Reverse piercing is not as uniformly recognized as “direct” piercing. As a practical matter, moreover, if a creditor already has personal liability against a shareholder/member, there are easier ways to collect on that liability (e.g., garnish dividends/wages, foreclose on the ownership interest).
Contact us with questions pertaining to corporations, LLCs, shareholders, members and other general business questions.