Piercing the corporate veil is an equitable remedy employed by Iowa courts “to further the public convenience, cure wrongs, protect against fraud, and advance the ends of justice …” HOK Sport, Inc. v. FC Des Moines, L.C., 495 F.3d 927, 935 (8th Cir. 2007). To this end, Iowa courts may hold a corporation’s owner(s) liable if equity requires.
The Eighth Circuit Court of Appeals thoroughly explained the theory of piercing the corporate veil in HOK Sport, Inc., stating in part:
Under Iowa law, disregarding an entity’s corporate form by piercing the corporate veil is appropriate if ‘the corporation is a mere shell, serving no legitimate business purpose, and used primarily as an intermediary to perpetuate fraud or promote injustice.’
Id. at 935 (internal citations omitted).
The court continued its analysis, explaining that the corporate form may be disregarded if one of six different factors is established:
[M]ere identity of … ownership and corporate management is not alone sufficient to permit a piercing of the corporate veil … An abuse of the corporate privilege may justify piercing the corporate veil as to persons who actively participate in the conduct of corporate affairs and have provided inadequate capitalization … The corporate form can be disregarded if (1) the corporation is undercapitalized, (2) without separate books, (3) its finances are not kept separate from individual finances, individual obligations are paid by the corporation, (4) the corporation is used to promote fraud or illegality, (5) corporate formalities are not followed[,] or (6) the corporation is merely a sham.
Id. at 936 (internal citations omitted). A litigant that is seeking to apply the doctrine and hold individuals personally liable is not required to prove all six factors. For example, proving fraud may be sufficient, but it is not a prerequisite for piercing the corporate veil in all circumstances. See Adam v. Mount Pleasant Bank & Trust Co., 355 N.W.2d 868, 872 (Iowa 1984) (“Fraud is not a prerequisite for piercing the corporate veil.”); State ex rel. Miller v. Internal Energy Mgmt. Corp., 324 N.W.2d 707, 715 (Iowa 1982) (“[F]raud constitutes a sufficient basis for piercing the corporate veil.”); see also Team Cent., 271 N.W.2d at 923.
The HOK Sport, Inc. opinion contains a wealth of information on this subject along with multiple citations to other helpful legal authorities. While the opinion relates to a non-profit corporation, the court repeatedly states the same law would apply to a for-profit corporation. HOK Sport, Inc., at 935-6.
The HOK Sport, Inc. opinion was filed in August 2007 and addresses piercing the corporate veil as that theory is applied to corporations. What is currently unknown, however, is how an Iowa court would apply the reasoning of HOK Sport, Inc. to a limited liability company, especially considering the statutory protections that apply to limited liability companies in Iowa as explained in this post.
For more information on Iowa law regarding piercing the corporate veil, or about how owners of Iowa corporations may be held liable for certain actions and/or inactions, you should consider contacting a licensed attorney.
Matthew McKinney, as owner and host of this site, cannot and does not warrant the accuracy or reliability of the information presented on or through this site. The information on this website does not constitute legal advice and readers should not rely on it to solve problems; Further, you should seek licensed counsel before taking any action. Any information provided on this site is presented “As Is” for your personal curiosity and enjoyment. It is not meant to be relied upon for legal advice, counsel, or for any other purposes. Such information does not take the place of a lawyer. Rules and laws differ by jurisdiction and the information contained within this website may not apply in your jurisdiction. The appearance of articles, listings, or ads, by or for professionals, on this site, does not constitute an endorsement. In all cases, you are responsible for determining the quality of services, information, and/or advice provided by professionals through, or as a consequence of, your use of this site. Neither Liability nor responsibility shall arise to any person or entity with respect to loss or damage caused (or alleged to be caused), directly or indirectly, by information posted on this website, or by reason of contact with a professional listed on, or posting information to, this site. No attorney-client relationship is formed by viewing this website and practice is limited to jurisdiction where lawyers are admitted. The information furnished on the website is only general and not a substitute for personalized legal advice. Legal advice cannot be given without full consideration of all relevant information relating to the individual(s) situation. Laws can change daily and new laws may, and likely will, affect the accuracy of the information herein. The information herein may be outdated and replaced by new law.
If you are seeking representation, please read the following notice before sending an e-mail:
Sending an e-mail will not make you a client. Until an agreement regarding representation is reached with you, anything you send will not be confidential or privileged. Before representation can occur, a lawyer will first take you through the conflict of interest procedure and see that you are put in touch with the lawyer best suited to handle your matter.
If you proceed with an e-mail, you confirm that you have read and understood this notice.