piercing the corporate veilv.
Reviewed by Owen Hathaway, AttorneyUpdated June 15, 2026When a court sets aside an entity's liability shield and holds owners personally responsible, usually because they ignored the entity's separateness.
Piercing the corporate veil is a court's decision to disregard the limited-liability protection of a corporation or LLC and hold the owners personally liable for the entity's debts. It is an exception to limited liability, applied when the entity is treated as the owner's alter ego.
Common triggers include commingling personal and business funds, undercapitalization, failing to observe formalities, and using the entity to commit fraud. The defense is simple in concept: respect the entity as separate: keep separate accounts, adequate capital, proper records, and arm's-length dealings.
Colorado courts apply an alter-ego analysis weighing factors like commingling and undercapitalization. Wyoming's LLC Act provides that failure to observe formalities alone is not a ground to pierce (Wyo. Stat. § 17-29-304(b)), a more owner-protective rule than Colorado's general standard.
Related terms
- limited liability companyA business structure that shields its owners' personal assets from the company's debts and lawsuits, while staying simpler and more flexible to run than a corporation.
- operating agreementThe contract among an LLC's owners setting the internal rules: who owns what, who manages, how profits split, and what happens when an owner exits.