There’s a persistent old wives’ tale that once you form a company, you’re suddenly shielded from everything. Every act, every contract, every liability—none of it can possibly reach you. As if filing with the Secretary of State instantly transforms you into an untouchable, impenetrable fortress.
Here’s the truth: your company is a mask. A good mask, a useful mask—but still just a mask. It’s designed to keep your personal life out of reach, shield your assets, and let the business world interact with “Fancy Company, LLC” instead of you. Think of it as the costume you put on for the big ball—you get to dance, negotiate deals, make sales, and no one sees the person behind the mask.
But masks can slip. And if you start crashing chandeliers, causing mayhem, or otherwise misbehaving, people will figure out who you are. In other words: you don’t get to be a Scooby-Doo villain. Courts have zero interest in chasing you around the haunted mansion only to discover—surprise!—you were the owner all along, messing with everyone to get better property valuations and lower taxes.
That’s where piercing the corporate veil comes in. It’s the legal doctrine courts use to say, “Nice try. Take the mask off. You’re responsible.”
So what does that actually mean?
In more technical terms, courts look at whether your company is really just your alter ego—meaning no true separation between you and the entity—or whether the company is being used as a sham to perpetrate a fraud. These standards are applied on a case-by-case basis. No two situations are identical, and the court will dig into the facts to decide whether your business structure deserves to be respected—or ignored.
Below are some real examples from Texas cases where courts said, essentially, “Yep, we all know it’s really you” and required owners and officers to personally be responsible for their company’s debts.(These are don’t-do-this examples—not creative suggestions for how to attempt fraud. Scooby-Doo caught all of them.)
1. The “Corporate Disappearing Act”
Purposely avoiding corporate responsibilities—like failing to pay franchise taxes, dissolving the company while debts are outstanding, closing accounts, or transferring assets to yourself or another entity to dodge obligations. See Tryco Enters. v. Robinson, 390 S.W.3d 497 (Tex. App.—Houston [1st Dist.] 2012, pet. dism’d); Latham v. Burgher, 320 S.W.3d 602 (Tex. App.—Dallas 2010, no pet.)
2. “Shell Games”
Shifting assets, contracts, or funds between businesses or individuals to misrepresent financials, avoid repayment, or undercapitalize accounts. See McCarthy v. Wani Venture, A.S., 251 S.W.3d 573 (Tex. App.—Houston [1st Dist.] 2007, pet. denied)
3. “Personal Piggy Bank”
Using company funds to pay personal expenses, pulling far more money than a reasonable salary, or using business accounts to finance personal luxuries—like dropping a down payment on a yacht “for the company.” See Valley Mech. Contractors v. Gonzales, 894 S.W.2d 832 (Tex. App.—Corpus Christi 1995, no writ); Rose v. Intercontinental Bank, N.A., 705 S.W.2d 752 (Tex. App.—Houston [1st Dist.] 1986, writ ref’d n.r.e.)
4. “Phantom Schemes”
Inventing fake entities, employees, invoices, or other phantoms to siphon money into personal accounts or claim distributions for yourself or family members. See Zisblatt v. Zisblatt, 693 S.W.2d 944 (Tex. App.—Fort Worth 1985, writ dism’d w.o.j.); Ward Family Found. v. Arnette, 454 B.R. 663 (Bankr. N.D. Tex. 2011)
These are just a few of the many ways courts have found companies to be nothing more than “corporate fiction”—a polite way of saying the business wasn’t actually functioning as a real, separate entity.
The Bottom Line
Forming a company does give you protection. It’s the entire point of having a business entity. But that protection only works when the company is run properly and not treated as a personal toy, disguise, or mischief-making alter ego.
All types of entities—corporations, LLCs, LLPs, LPs—can have their veil pierced. The rules differ slightly, but the core idea is the same: keep your personal actions and the company’s actions separate.
If you want to make sure your entity actually protects you the way it’s supposed to, talk to an attorney who can help you choose the right structure and maintain it properly.
So choose your mask wisely—and wear it correctly—because the court won’t hesitate to unmask you if you turn your company into a costume for bad behavior.
