A recent case has raised concern over the level of protection afforded under the traditional corporate veil. We need to watch this closely to ascertain whether this is an isolated case or a developing trend. According to a recent case in the Appellate Court for the First District, which for practical purposes is Cook County, a non-shareholder who is not an officer, director, or employee of a corporation, may be found individually liable for a judgment against a corporation.

In John Buckley and Mama Grimm's Bakery, Inc. v. Haithham Abuzir, 2014 IL App (1st) 130469 (April 10, 2014), a bakery corporation and its individual owner sought to pierce the corporate veil of a pastries corporation to collect a judgment directly from its individual financier and controller. The trial court granted the defendant's motion to dismiss because the individual defendant was not a shareholder, director, officer, or employee of the corporation. The plaintiffs appealed the dismissal. On appeal, the plaintiffs argued that the defendant made all the business decisions for the corporation and exercised control to such a degree that it amounted to an alter ego of the individual defendant. The individual defendant made two arguments in defense: (1) Illinois courts only pierce the corporate veil to impose liability on a corporation's shareholders, officers, directors, or employees; and (2) he was not party to the underlying action and was therefore deprived of the ability to defend himself against the allegations made against the pastries corporation.

The First District held that if plaintiffs proved defendant was the alter ego of the corporation, the decision not to defend the underlying suit would have been his own. After acknowledging that the courts and commenters around the country were split on the issue of whether the corporate veil may be pierced to reach non-shareholders like this.

This case clarifies a previously muddy area of Illinois law and requires that closely held corporations undertake every effort to maintain the corporate form. Lawyers should stress to their clients the importance of adequate capitalization, issuance of stock, election of a board of directors, recording of meeting minutes, and other corporate formalities. The simple formation of a corporation is not enough for individual clients to avoid personal liability, even if the individual is not a shareholder, director, or officer of the corporation.

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The VanFleet Law Firm has a strong history in Commercial Litigation, Banking Law and General Business Law matters. Founded by Joseph VanFleet in 1998, the practice has grown and flourished over the years thanks to the talent, expertise and tenacity of the VanFleet legal team. Today, it provides counsel to a broad range of local, regional, national and international clients.

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