Piercing The Corporate Veil In Colorado: What Business Owners Should Avoid

Posted September 12, 2025 in Uncategorized

Are you familiar with the legal concept of piercing the corporate veil? If you’re not, you should be, as violating this foundational legal tenet could leave you personally on the hook for paying damages in a lawsuit.

In Colorado, business owners are usually protected from being personally sued for damages in a lawsuit filed against their enterprise. However, there are some instances in which a business owner can be held personally liable, and their assets, including their home and bank accounts, seized in a civil action.

Following the advice of your Greenwood Village, CO business formation lawyer can help you avoid being personally liable in a lawsuit. Even if you have already inadvertently engaged in actions that could be considered piercing the corporate veil, the legal team at Volpe Law, LLC may be able to help you walk it back.

What Does Piercing the Corporate Veil Mean?

Piercing the corporate veil involves actions that disregard the company’s form. This can look different depending on which type of business entity (LLC, PLLC, S-Corp, C-Corp, non-profit) you selected.

To determine if a business owner pierced the veil of their entity, a Colorado court conducts a three-part enquiry involving these three questions:

• Is the company the alter ego of the owner?
• If the company is the alter ego of the owner, was the company used to perpetrate a fraud or defeat a rightful claim?
• Would disregarding the corporate form and holding the owner personally liable for the company’s actions achieve an equitable result?

First, the owner must prove that the company is not an alter ego. The courts consider whether the company operates as a distinct business entity from the owner, and whether the owner’s personal funds were comingled with the company’s.

The courts also ask if the way the ownership is structured and the company is controlled could potentially facilitate misuse of company funds and assets by the owner, or whether the company is a shell for the owner’s personal interests.

Lack of adequate corporate records, a corporation that is thinly capitalized, or a corporation that disregards legal formalities may also be looked at askance by a judge.

Do you need to make changes? An experienced corporate attorney can review your business practices and advise you.

Steps to Reduce Piercing the Corporate Veil

There are five essential steps you and your attorney can take to help decrease your risk of being liable in a business lawsuit:

• Keep separate bank accounts for yourself and your company, and avoid using business funds for personal expenses.
• Maintain all corporate records required under Colorado law.
• Follow the legal formalities your company is subject to, such as holding shareholder meetings and documenting meeting minutes when applicable.
• Ensure your company has adequate funds to cover obligations and create a financial buffer for unexpected costs.
• Never use company money for personal purchases, such as luxury items or non-business expenses.

Finally, follow your Greenwood Village business formation lawyer’s advice to the letter. If you have questions or if you’re concerned that you may have inadvertently pierced the corporate veil, contact Volpe Law LLC today for a complimentary discovery call.