Incorporating to Evade Personal Obligations
Contact Neufeld Legal PC for your incorporation legal work at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com
Incorporating a company in an effort to evade personal obligations (debts, judgments, tax liability) is a serious legal violation that can have major consequences, primarily by leading a court to "pierce the corporate veil." Normally, one of the main benefits of a corporation is limited liability, which protects the personal assets of the shareholders, directors, and officers from the company's debts and liabilities. However, when a corporation is used to evade personal obligations, courts can take away this protection.
The most significant consequence of a court determination that the company had been incorporated to evade personal obligations would see the court pierce the corporate veil, which means:
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Personal Liability: The court will disregard the legal separation between the corporation and the individuals who control it (shareholders, directors, or officers). This holds those individuals personally liable for the company's debts and liabilities.
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Loss of Asset Protection: Their personal assets (like homes, savings, and investments) are no longer shielded and can be used to satisfy legal judgments, penalties, and debts when seeking to evade personal obligations.
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Punitive Damages: Individuals found to have engaged in egregious evasion of personal obligations, oftentimes involving serious fraud or deception, may also be held personally liable for punitive damages.
Beyond the loss of limited liability, individuals involved in incorporating or running a business for fraudulent or illegal purposes can face:
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Criminal Charges: Individuals can face criminal prosecution for offenses like tax evasion, fraud, conspiracy, and other criminal activities, leading to imprisonment and substantial criminal fines.
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Regulatory Penalties: Enforcement actions, fines, and sanctions from government bodies (like tax authorities, securities regulators, etc.).
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Civil Lawsuits: The corporation and its controllers (shareholders, officers, directors) will be sued by victims of the fraudulent or deceptive evasion to recover damages.
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Injunctions and Dissolution: The court may issue orders to stop the illegal activity, or the federal or provincial government may move to dissolve or cancel the corporation's articles of incorporation.
If your business is seeking experienced professional legal representation with respect to incorporating a new corporation or dealing with the corporate legalities impacting your company, contact us at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or via email at Chris@NeufeldLegal.com.
