Summary. The corporate veil is not created by filing articles; it is maintained by behaving as though the entity is real. This checklist covers what that means in practice, organized around the factors courts weigh in deciding personal liability: formation and capitalization, then separateness — separate accounts, documented related-party transactions, disclosed signature blocks, contracts in the entity's name. Later phases address governance records, state compliance and foreign qualification, the single-member LLC, dissolution, and what to do once alter ego is pleaded.

What this checklist is for. Maintaining limited liability, and preparing the record that defeats an alter ego claim. For the entity choice itself, see Startup Formation Legal Checklist.

Phase 1 — Form it properly

  • File articles of incorporation or organization in the chosen state and obtain the filed copy.
  • Adopt bylaws (corporation) or an operating agreement (LLC) — and actually sign them. An LLC with no operating agreement defaults to the state statute, which rarely matches the members' expectations.
  • Hold and document the organizational meeting or initial written consent: adopt governing documents, elect directors or managers, appoint officers, authorize the bank account, and issue equity.
  • Issue the equity: stock certificates or a written membership interest record, with the consideration actually paid. An entity where nobody ever paid for their shares is a recurring alter ego finding.
  • Obtain an EIN, and open a bank account in the entity's name using the entity's EIN.
  • Maintain a capitalization table and a stock or membership ledger.
  • Appoint a registered agent and keep the address current.
  • Capitalize adequately for the business's foreseeable obligations, and document capital contributions with entries in the books. Undercapitalization is a recurring factor, and in some states it is close to dispositive when paired with other findings.
  • File the beneficial ownership information report if required under the Corporate Transparency Act, 31 U.S.C. § 5336, and confirm the current scope of the requirement, which has been the subject of litigation and rulemaking.

Phase 2 — Keep the money separate

  • Never pay personal expenses from the business account, and never pay business expenses from a personal account without a documented reimbursement.
  • Take money out only through defined channels: salary (with payroll taxes), documented distributions, documented loans with a note and a rate, or expense reimbursement with receipts.
  • Document every owner loan in both directions with a promissory note, an interest rate, a repayment schedule, and actual payments. An undocumented "loan" repaid whenever cash allows is treated as commingling.
  • Maintain separate books and a real accounting system; file the entity's own tax returns.
  • Keep separate credit cards; do not run business charges on a personal card as a habit.
  • Ensure related-party transactions — rent paid to an owner's property, services from an affiliate, shared employees — are at arm's length, in writing, and approved.
  • If several entities are affiliated, maintain separate accounts, separate records, and written intercompany agreements; do not sweep cash between them informally.

Why this matters. Commingling is the single most cited factor in veil-piercing decisions, and it is the easiest to prove from bank records. See Sea-Land Services, Inc. v. Pepper Source, 941 F.2d 519 (7th Cir. 1991).

Phase 3 — Act like the entity in the outside world

  • Sign every contract in the entity's name with a disclosed capacity: "ABC Widgets, LLC, By: /s/ Jordan Reyes, Its: Manager." Signing your own name alone invites personal liability. See Website Terms of Service and Online Contract Formation.
  • Put leases, loans, insurance, licenses, utilities, and vendor accounts in the entity's name.
  • Use the full legal name including the entity designator on invoices, contracts, the website, email signatures, business cards, and signage.
  • File a DBA for any assumed name, and use the assumed name in the form "ABC Widgets, LLC d/b/a Widget World."
  • Do not say "I" when you mean the company in negotiations or correspondence — statements that the owner personally will pay create personal obligations.
  • Understand that a personal guaranty is a voluntary waiver of the veil for that obligation; negotiate limits, and track which obligations are guaranteed. See Commercial Lease Review Checklist.
  • Maintain adequate insurance — the practical substitute for the veil in tort cases, and evidence of a functioning business.

Phase 4 — Governance records

  • Hold an annual meeting of shareholders and of directors, or execute an annual written consent in lieu.
  • Document major decisions by resolution or consent: significant contracts, borrowing, leases, officer compensation, equity issuances, distributions, and litigation.
  • Document conflict of interest transactions with disinterested approval and full disclosure, satisfying the applicable safe harbor (e.g., Del. Code Ann. tit. 8, § 144). See Corporate Structuring and Running Multiple Businesses.
  • Maintain a minute book — governing documents, consents, minutes, equity records, and material contracts — and keep it current rather than reconstructing it the week before a closing.
  • Confirm distributions satisfy the applicable solvency and surplus tests; unlawful distributions create personal liability for those who authorized them.
  • Keep the operating agreement current with the actual ownership and management structure.
  • For an LLC, note that most modern statutes provide that failure to observe corporate formalities is not itself a ground for imposing personal liability (see, e.g., Del. Code Ann. tit. 6, § 18-303 and comparable provisions) — but commingling, fraud, and undercapitalization still are.

Phase 5 — State compliance

  • File the annual or biennial report in the state of formation, on time.
  • Pay franchise tax and any minimum entity tax.
  • Foreign qualify in every state where the entity transacts business, and file reports there as well. Failure to qualify commonly bars the entity from bringing suit in that state until it registers and pays penalties.
  • Maintain licenses and permits, including professional licensing where applicable.
  • Keep the registered agent and principal office address current; a missed service of process leading to a default judgment is a preventable disaster.
  • Confirm the entity is in good standing annually — administrative dissolution for a missed report is common and can leave owners exposed for obligations incurred while dissolved.
  • Keep payroll tax deposits current; the trust fund recovery penalty under 26 U.S.C. § 6672 reaches responsible persons personally regardless of the veil, as do many state wage and sales tax provisions.

Phase 6 — Special situations

  • Single-member LLC: formalities matter more, not less. Document everything, keep an operating agreement, and never treat the account as a personal wallet. Note that some states' charging order protections are weaker for single-member LLCs.
  • Series LLC: maintain genuinely separate records and accounts per series, or the separation is unlikely to be respected.
  • Holding company structures: written intercompany agreements, separate boards or managers, separate records, and no informal cash sweeps.
  • Professional entities: the veil does not shield a professional from liability for their own malpractice; carry appropriate coverage.
  • Reverse veil piercing: a creditor of an owner reaching entity assets — jurisdictions differ, and the analysis weighs harm to innocent members. Manichaean Capital, LLC v. Exela Technologies, Inc., 251 A.3d 694 (Del. Ch. 2021).
  • Dissolution: wind up properly, give creditor notice, pay or provide for claims, distribute the remainder, and file articles of dissolution. Distributing assets ahead of creditors creates personal exposure.
  • Successor liability: a purchaser continuing the same business with the same owners may be treated as a mere continuation regardless of the deal structure.

Phase 7 — When alter ego has been pleaded

  • Assemble the separateness record: formation documents, minute book, bank statements, tax returns, contracts, insurance, and state filings.
  • Identify the applicable state's test — most require both a unity of interest and ownership such that separate personalities no longer exist and an inequitable result or fraud if the acts are treated as the corporation's alone.
  • Note that veil piercing is generally an equitable remedy, not an independent cause of action, and is decided by the court in many jurisdictions.
  • Address the specific factors the complaint alleges, item by item, with documents.
  • Identify whether the plaintiff's real theory is fraudulent transfer or direct personal participation in a tort — both reach owners without piercing anything.
  • Consider whether the contract at issue was personally guaranteed, which moots much of the fight.
  • Do not fix records after the claim arises without disclosing the timing; backdated minutes are far worse than missing minutes.

Common mistakes

  • Filing the entity and never signing an operating agreement.
  • One bank account for the business and the family.
  • Signing contracts in a personal name with no capacity stated.
  • Undocumented owner loans.
  • Missing the annual report, leading to administrative dissolution.
  • Not foreign qualifying where the business actually operates.
  • Sweeping cash between affiliates with no intercompany agreements.
  • Reconstructing the minute book the week before a financing.
  • Assuming the LLC form eliminates the need for records.

Primary authority

Related

This checklist is educational and not legal advice. Veil-piercing standards are state-specific and fact-intensive. Consult qualified corporate counsel about your entity structure and records.