The North Carolina Court of Appeals recently issued a decision regarding piercing the corporate veil, which reiterated that under North Carolina’s “instrumentality rule” an owner of a corporation or limited liability company can be held liable for the debts of the company, even if he or she is found not to have engaged in any wrongdoing individually. In Estate of Hurst v. Moorehead I, LLC, et. al., the Court upheld the trial court’s determination that the individual owner of the corporate defendant was individually liable despite the fact that the jury determined that the owner had not engaged in fraud and did not award actual damages for unfair and deceptive trade practices. The court determined that the owner was properly liable by piercing the corporate veil. In North Carolina, the corporate form (and the protection from liability it affords) can be disregarded when the defendant completely controls the company, uses that control to commit some fraud or wrong, and that fraud or wrong causes damage to the plaintiff. The courts will look at numerous factors – including whether the company is adequately capitalized, whether corporate formalities were followed, whether the company has an independent identity, and whether a single enterprise has been excessively fragmented into separate corporations. Limited liability is one of the greatest advantages of the corporate forms available to businesses, and it is critical to preserve that protection. If you have any questions about the Court’s recent decision or how it might affect your company, please feel free to contact us.
Vann Attorneys | Raleigh Law Firm