Legal Memorandum: Piercing the Corporate Veil in MN

Issue: Under Minnesota law, what is required to state a viable claim for piercing the corporate veil?

Shareholders of a corporation or members of a limited liability company*FN1 ordinarily are not personally liable for the entity’s debts.  However, under certain circumstances, a district court may pierce the veil to hold an individual owner liable for the acts of the limited liability entity.  Victoria Elevator Co. v. Meriden Grain Co., 283 N.W.2d 509, 512 (Minn. 1979).  Such circumstances exist when the corporation was formed as the shareholder’s “alter ego” or as a mere “instrumentality” and there is an “element of injustice or fundamental unfairness” to be avoided.  Id.; Equity Trust Co. v. Cole, 766 N.W.2d 334, 339 (Minn. Ct. App. 2009)

“When using the alter ego theory to pierce the corporate veil, courts look to the reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation.”  Hoyt Props., Inc. v. Prod. Res. Group, L.L.C., 736 N.W.2d 313, 318 (Minn. 2007).  Three factors in particular have been held to justify piercing the veil:

These factors include: (1) the lack of [the LLC] following LLC formalities; (2) the absence of LLC records; and (3) the [LLC’s] existence as a mere façade for Hackbarth’s individual dealings. Accordingly, on this record, the district court did not abuse its discretion by piercing the LLC veil and by holding Hackbarth personally liable for the advertising debts.

SCA License Corp. v. West Builders, LLC, 2011 Minn. App. Unpub. LEXIS 403 (Minn. Ct. […]