In our economic and legal system, individuals hold the privilege of creating a corporation or limited liability company which is a legal person. In that way individuals can go into business under a company name, without being personally liable for the debts incurred by the company. If the company loses money and is unable to pay its debts, the individuals behind the venture can walk away. That’s the American way; it facilitates risk and enables business. This limitation on the owners’ liability is referred to as the corporate veil.

But what such individuals do not have the privilege of doing is to use their control of the company to take money or benefits out of the company for themselves personally, without seeing to it that the company receives consideration in return. In plain terms, the owners are not allowed to loot the company. If that happens, and as a result the company is left without sufficient assets to meet an obligation to a third-party, that third-party has been harmed by the owners’ abuse of the company and may pierce the corporate veil, i.e. claim damages against the owner personally. Morris v. State Dep’t of Taxation & Fin., 82 N.Y.2d 135, 603 N.Y.S.2d 807 (1993).