What is reverse veil piercing, and when is it appropriate?
A business owner typically forms a limited liability entity, e.g., a corporation or a limited liability company, to insulate the owner from liabilities arising from the entity’s activities. Likewise, the entity also insulates the entity’s assets from the owner’s liabilities. Reverse veil piercing allows the owner’s personal creditors to seize an entity’s assets to satisfy an owner’s debts. A modification of the familiar alter ego doctrine, reverse veil piercing has been recognized by many courts and it appears to be gaining favor. While controversial (see, e.g., Stephen M. Bainbridge, Corporate Law and Economics 166 (2002)), a recent California appellate decision illustrates how reverse veil piercing can be appropriate for limited liability companies.