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Protecting Your Business

Under Indiana law, shareholders of a corporation and members of a limited liability company

enjoy the benefit of limited liability. Indiana law treats corporations and LLC's as separate legal entities distinct from their owners. Unlike partnerships and sole proprietorship's, shareholders

and members are not personally liable for the business’s debts, obligations, or liabilities. (See Indiana Code section 23- 1 - 26 - 3 and Indiana Code Section 23 -18 - 3 -3 (a).)

There are exceptions to this rule, however, where shareholders or members can be held liable for company obligations. The most common exceptions are the following:

1) shareholders or members can be held responsible for their own actions;

2) debts which are personally assumed or guaranteed; and

3) debts imposed personally by statute such as the failure to collect, account for, and pay payroll taxes (Indiana Revenue Code Section 6672 ).

In the interest of preventing fraud or other injustices in certain circumstances, courts can and do “pierce the corporate veil” to reach the personal assets of the shareholders or members. “Piercing the corporate veil” is the equitable remedy courts used to disregard the corporate and LLC structure and hold the owners personally liable for the company's obligations. Shareholders and members of a business must pay particular attention to observe the corporate formalities in order to preserve limited liability characteristics of the business. Failure to observe corporate formalities creates potential avenues of attack for plaintiffs to challenge the validity of the corporate form and successfully pierce the corporate veil.”.