What Is A Corporation?
A corporation is a business entity that is guided by a group of individuals (typically referred to as the board of directors) who act on behalf of the corporation. Under the law, a corporation is its own legal entity, which means that the law treats corporations as separate from the individuals that run the corporation. The North Dakota Business Corporations Act controls most corporate activities in the state. Since corporations are treated as an individual person under the law, a corporation itself can be sued like an individual person.
If you want to sue a corporate officer or employee of a corporation personally, the task becomes more difficult. Why would you want to personally sue an officer of a corporation? A common case is if the corporation runs out of money or if it was undercapitalized. If a corporation has no money, suing the corporation itself would be futile, as you would not be collecting anything from the corporation, even if your lawsuit was successful. To sue an individual behind a corporation, you must successfully ‘pierce the corporate veil.’
Piercing The Corporate Veil
In North Dakota, individual officers of a business entity (Corporation, Limited Liability Corporation, and Limited Liability Partnership) can be held liable under certain circumstances.
The factors to determine whether the court will pierce the corporate veil are:
- Insufficient capitalization for purposes of corporate undertaking;
- Failure to observe corporate formalities;
- Nonpayment of dividends;
- Insolvency of debtor corporation at the time of the transaction in question;
- Siphoning of funds by a dominant shareholder;
- Nonfunctioning of other officers and directors;
- Absence of corporate records; and
- Existence of a corporation as merely a facade for individual dealings.
An element of injustice and unfairness must also be present in a piercing the corporate veil claim. This means that the circumstances as a whole must show a basic level of unfairness to pierce the corporate veil.
Piercing the corporate veil can be difficult, but it is possible. The question of ‘is it worth it’ to sue a corporation or business entity depends on the specific facts of the case. Suing a corporation or any business entity is a tough decision that requires forethought and consideration.
If you want to sue a corporation, contact an attorney so we can help you through the steps of filing a legal action. If you are questioning whether or not you can sue a business entity or if you have a valid claim or not, contact the Business Law Team at SW&L by calling 701-297-2890, or via the contact form below.
The information contained in this article and on this website is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem you may have.