Single owner S Corp - can State pierce corporate veil?

[erchess]

We all know that an ordinary creditor can pierce the corporate veil and collect from the owner if certain formalities of corporate life such as board meetings with minutes, bylaws, and so on are not met. Since few of us are lawyers probably most here are as hazy as I am about exactly what is required in any given case.

My question is whether the State has the same ability. I would imagine they do but I thought I would ask.

[AJsTax]

If you are

talking about trust funds, for sure. I know there are cases where they were able to go after employees of corps that knew taxes were not being paid and should have been, not just the owners.

[Gretel]

We all know that an ordinary creditor can pierce the corporate veil and collect from the owner if certain formalities of corporate life such as board meetings with minutes, bylaws, and so on are not met. Since few of us are lawyers probably most here are as hazy as I am about exactly what is required in any given case.

My question is whether the State has the same ability. I would imagine they do but I thought I would ask.

I never thought there was any distinction between ordinary creditors and all others. Maybe there is but I believe anyone can hire a lawyer who easily pierces to veil if formalities are not observed. May your question is if the State needs to hire a lawyer to do so?

[ChEAr$]

We all know that an ordinary creditor can pierce the corporate veil and collect from the owner if certain formalities of corporate life such as board meetings with minutes, bylaws, and so on are not met. Since few of us are lawyers probably most here are as hazy as I am about exactly what is required in any given case.

My question is whether the State has the same ability. I would imagine they do but I thought I would ask.

First, an ordinary creditor may not "pierce the corporate veil" and go after stockholders for corporate debts unless these individuals have personally guaranteed the debts. Naturally I'm talking about unsecured debts such as accounts payable and even bank loans if not personally guaranteed.

Now the IRS can do it as we all know, and if they can do, so can state authorities.

[erchess]

Single Owner S Corp

Corporations owe NC Annual Report and Franchise Taxes and as I learned tonight, client observed no formalities. He did exactly as he would have had he been running sole propreitorships and I have told him to talk to a lawyer if he doesn't believe me. The Agent has offered to abate 85 bucks of penalty per corp if he goes on and pays. I have told him they will eventually get around to seizing a vehicle or other asset if he doesn't pay.

[Gary2]

Corporations owe NC Annual Report and Franchise Taxes and as I learned tonight, client observed no formalities. He did exactly as he would have had he been running sole propreitorships and I have told him to talk to a lawyer if he doesn't believe me. The Agent has offered to abate 85 bucks of penalty per corp if he goes on and pays. I have told him they will eventually get around to seizing a vehicle or other asset if he doesn't pay.

Isn't there a catch-22 there? If he observed no formalities, then a common result is to treat the corporation as though it didn't exist. If it doesn't exist, then it doesn't owe an annual report fee, etc.

I'm betting it doesn't work that way - states aren't likely to allow such loopholes - but I wouldn't be surprised if it does. In any event, I think we all know that the correct answer is to speak to a lawyer.

[snowshine]

NC does not recognize single member S-Corps (or NC LLC's!) as corporate entities for purposes of liability and debt collection. If you are a NC corp ALWAYS have another 1% shareholder or risk the consequences (or form a C-Corp which is protected)..

[JohnH]

???
Snowshine - do you happen to have any cites or references handy on that?
I've never heard this before.
(Unless maybe you are referring only to single-member LLC's electing corp status?)

[jimmcg]

Tax issues aside there are presenly about a half dozen or so states that do not recognize single member llc's for creditor protection. In addition to that in other state jurisdictions case law is still being developed on how and when the corporate veil may be pierced. Bottom line is get good legal advice in advance regarding the state you are established in and the states you wish to do businees in and even then be prepared to spend some time in court presenting and arguing your case.