In order to obtain limited liability, Tom and Doris formed an LLC to operate their catering business. They sometimes deposited the proceeds from catering jobs into their personal checking accounts and if they needed to pay personal bills and were short
of funds, they used the business account. If creditors of the business cannot get payment for their invoices, is there anything a court can do to help the creditors?
It is common under corporate law for shareholders who do not comply with the technicalities of the law to be held personally liable for the corporate debts. This is called "piercing the corporate veil.". Similarly, the members of an LLC may be held liable if they do not observe the formalities required for the business. Here, Tom and Doris were mingling business and personal funds. Courts would be likely to disregard the LLC form and hold Tom and Doris personally liable for the business debts.
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