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Attorneys always take note when the Missouri Court of Appeals describes a case opinion as “a matter of first impression.”

This means the exact issue before the court has not been addressed by that court, or within that court’s jurisdiction, thus there is no binding authority on that matter. The resulting “new” opinion means “new” law in Missouri.

Recently, the Missouri Court of Appeals faced the question of whether a minority member of a limited liability company (“LLC”) can pierce the corporate veil.

What is piercing the corporate veil?

LLCs are generally considered separate legal entities that are distinct from their members or owners. Thus, LLC members are generally not personally liable for the entity’s debts, hence the use of the term “corporate veil.”

However, that protection is not absolute.

Where a corporation (or an LLC) is used for an improper purpose and to perpetuate injustice by which it avoids its legal obligations, a court of equity will step in, pierce the corporate veil and grant appropriate relief.

In the prototypical case involving piercing the corporate veil, a creditor with a right to the assets of an undercapitalized corporation seeks to execute against the assets of the party who owns and controls the corporation.

But can a minority member sue his or her fellow LLC members?

The Missouri Court of Appeals wrestled with this concept. First, it recognized that normally a shareholder should not be able to choose when the corporate form may be disregarded and when it may not be, and hide behind the corporate veil, then discard it when it is no longer usable.

Still, the court felt there was no Missouri authority which addressed the specific issue: the ability of a minority shareholder to pierce the corporate veil to hold liable majority shareholders.

And so, the Missouri Court of Appeals held that to uphold principles of equity, under “appropriate circumstances” a minority shareholder may attempt to pierce the corporate veil and impose a corporate obligation upon another shareholder.

In the specific case before it, which resulted in this new announcement of Missouri law, the appellate court agreed that while the particular LLC had financial difficulties, and even may have been more poorly managed, the plaintiff was unable to prove that the LLC was undercapitalized or that the majority shareholders perpetrated fraud to hide assets, or that the LLC was used for improper purposes.

Thus the court concluded that “[t]his is not enough to warrant piercing the corporate veil.”