Legal Question in Credit and Debt Law in Illinois

Collecting money loaned to a friend for business purposes

Loaned a friend who was starting a business money for equipment. He wrote a loan agreement which we (stupidly) did not have looked at by a lawyer. The business failed and he just walked away from the business and all debts. He never bought the equipment. We were told that the loan papers had been written as a loan to a corporation but signed as an individual and to have any hope of getting the money back we would have to break the corporate seal and prove that he was the corporation. How do we go about doing this?

Asked on 2/15/01, 4:52 pm

1 Answer from Attorneys

Kenneth J. Ashman Ashman Law Offices, LLC

Re: Collecting money loaned to a friend for business purposes

What you are referring to is what is called "piercing the corporate veil." This is a doctrine that permits claims against an individual who simply creates a corporate shell in order to insulate himself or herself from liability, but, otherwise, follows no corporate formalities. In other words, the corporation is merely an "alter ego" of the individual.

Courts generally consider a number of factors -- enumerated in the case law -- in order to determine whether the corporate veil should be pierced. A lot of what you are trying to accomplish depends upon the amount of money at stake, i.e., how much you lent to the borrower. If it is only a small amount, subject to small claims court, there probably won't be much analysis of the factors regarding piercing the corporate veil . . . the court will probably just take a pragmatic approach to the problem.

On the other hand, if the amounts at issue are substantial, courts will generally examine carefully the arguments of counsel -- whether oral or expressed in a brief -- regarding the corporate veil issue.

-- Kenneth J. Ashman,

Ashman & Griffin, LLC


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Answered on 4/02/01, 11:46 am

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