One of the top benefits of forming a corporation or LLC is the protection it grants owners’ personal assets from the debts and legal liabilities of the business, according to legal information site NOLO.com. This is especially true for owners of distribution companies, who industry consultant Mike Marks says are shouldering a greater share of growing product liability costs (read The Growing Cost of Product Liability).

But the “corporate veil” of protection that owners often take for granted can be “pierced” in court given the right circumstances, according to liability expert Chris Van Leeuwen, vice president of sales for liability insurance company Veracity Insurance Solutions.

Using company funds to pay off personal debts, personally guaranteeing payment of company debts to creditors or using the “alter ego” of a company name to engage in risky or fraudulent acts are all sure ways to put the corporate veil at risk, according to NOLO.com.

But it doesn't have to be that dramatic of an event to create risk. Comingling company and personal funds, even once or twice, can also endanger owners’ personal assets, according to Van Leeuwen. One business owner Van Leeuwen spoke with said his spouse personally accepted one customer check in three years of doing business. “Because of that one check, they went after their assets personally,” he says. Because of this, Van Leeuwen says distributors should take care to keep personal and business funds separate.