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(R)VP FAQs
Questions
- What is veil piercing?
- What is reverse veil piercing?
- When is veil piercing a concern?
- Why is reverse veil piercing not a concern for Connecticut entities?
What is veil piercing?
Veil piercing is a judicial doctrine that allows a judge to set aside the independent legal identities of a business entity and its owner, and go after the owner's assets for payment of the entity's liabilities. This can be important in the outcome of litigation involving torts or contracts that involve the business but not the owner.
For example, if a grocery store's employee fails to throw de-icer on the sidewalk and a customer slips and falls, ordinarily the grocery store business entity would be liable for the employee's negligence but the owner of the entity would not be. However, veil piercing would enable the slip-and-fall victim to go after the grocery store owner's house.
What is reverse veil piercing?
Reverse veil piercing is a judicial doctrine that allows a judge to set aside the independent legal identities of a business entity and its owner, and go after the entity's assets for payment of the owner's liabilities. This can be important in the outcome of litigation involving torts or contracts that involve the owner but not the business.
For example: a wealthy individual places their home and other assets under a family office LLC and then fails to shovel their sidewalk. A passerby slips and falls, and sues the wealthy individual. Ordinarily, the family office LLC would shield the assets that the wealthy individual uses in daily life. However, reverse veil piercing would enable the slip-and-fall victim to get into the family office LLC.
When is veil piercing a concern in Connecticut?
Under Connecticut's Public Act 19-181, a court may override statutory limitations on an interest holder’s liability for an entity’s debt, obligation, or other liability only if the court makes certain findings in accordance with its provisions. These findings include, among other things, that the interest holder used his or her domination or control over the entity to commit fraud or another violation of the law or his or her duties, which proximately caused injury or loss to the claimant. The act also specifies that a domestic entity’s failure to observe formalities relating to exercising its powers or managing its activities and affairs is not grounds to impose personal liability on an interest holder for the entity’s debt, obligation, or other liability based on a veil piercing claim.
Why is reverse veil piercing not a concern for Connecticut entities?
Public Act 19-181: In 2019, the Connecticut legislature passed Public Act 19-181, which prohibits “reverse veil piercing,” in which a domestic entity is held responsible for an interest holder’s debt, obligation, or other liability. This act applies only to Connecticut entities, so a business entity formed under another state's law does not qualify for the exemption from reverse veil piercing.