Courts disregard the separateness of an entity where it is used as an alter ego of its owner and observing the form would sanction injustice.
Traditional piercing reaches the owner’s assets for the entity’s debts. Factors include undercapitalisation at formation, commingling of funds, failure to observe formalities, absence of records, common officers and offices, diversion of assets, and use of the entity to promote fraud.
Two elements in most states. Unity of interest and ownership such that separate personalities no longer exist, and an inequitable result if the acts are treated as those of the entity alone. Neither alone suffices — an under-formalised company that has done nothing wrong is generally not pierced.
Reverse piercing reaches entity assets for the owner’s debts. Outsider reverse piercing is permitted in some states with caution, because it prejudices innocent co-owners and the entity’s creditors. Insider reverse piercing, sought by the owner to obtain a benefit belonging to the entity, is generally refused.
LLCs. Statutes in several states expressly provide that failure to observe formalities is not a ground for imposing liability, which narrows the analysis to commingling and fraud.
Enterprise liability treats affiliated entities under common control as one where they are operated as a single business, and is a distinct theory from piercing to owners.