A court doctrine that holds business owners personally liable for business debts when they have not maintained the entity as a genuinely separate legal person.
Piercing the corporate veil is what happens when a court decides to ignore the separation between a business entity and its owners, holding the owners personally liable for the entity's debts or legal obligations. It's the opposite of what people form entities to achieve.
Courts pierce the veil when the owners haven't respected the entity's separate existence. Key factors: commingling personal and business funds (paying personal bills from the business account), failing to follow corporate formalities (no meeting minutes, no records of major decisions), undercapitalizing the entity (not putting enough money in to cover foreseeable obligations), using the entity to commit fraud, or treating the entity purely as an alter ego with no real separate existence.
For small businesses and early-stage startups, maintaining the veil requires a few consistent practices: maintain a separate business bank account and never mix personal and business funds, document significant business decisions in writing, hold required meetings or pass actions by written consent, and don't treat the business as a personal account. If you do these things, the veil is generally safe.