Reverse veil piercing is different from traditional veil piercing in that it seeks to satisfy a debt of an individual through assets of an entity insider, rather than holding an individual responsible for acts of an entity. In cases of external reverse veil piercing, a third party outside the targeted business entity seeks the piercing. The alter ego doctrine prevents individuals or corporations from misusing corporate laws by the device of a sham corporate entity. In California, certain conditions must be met in order to apply the alter ego doctrine, these include a unity of interest and ownership between the corporation [or LLC] and its equitable owner, and an equitable result if the acts in question are treated as those of the corporation [or LLC] alone.
The court of appeals found that the trial court properly concluded that the wrongdoer used the LLC’s funds as if they were his own personal accounts. This included writing checks drawn on the LLC’s bank account for personal expenses, transferring funds to his personal bank account without repayment, and living rent-free on LLC property and receiving a monthly loan from the LLC.
The alter ego test encompasses multiple factors including the commingling of assets, failure to segregate funds, unauthorized diversion of corporate funds, and treatment by an individual of the assets as his own. Other factors include confusion of records, identical equitable ownership in the entities, and concealment of personal business activities.
Photos are available: flickr.com/photos/abekleinfeld/3818607630/sizes/o; flickr.com/photos/teddyllovet/4482880715/sizes/l; flickr.com/photos/27784972@N07/3621143824/