Which of the following is considered an 'Alter Ego' situation that may lead to piercing the corporate veil?

An 'Alter Ego' situation arises when a court determines that a corporation is not acting as a separate entity from its shareholders or owners, often leading to the piercing of the corporate veil to hold those individuals personally liable for the corporation's actions.

Failure to observe sufficient corporate formalities is a key factor in identifying an alter ego situation. This refers to situations where a corporation does not maintain the required legal distinctions between the business and its owners. For example, if a corporation does not hold regular meetings, keep accurate minutes, or maintain separate finances, it suggests that the corporation is simply a façade for the personal dealings of its owners. When the owners treat the corporation informally, it weakens the legal protections typically provided by limited liability, making it more likely that a court will pierce the veil.

In contrast, maintaining excessive funds, consistently following corporate bylaws, and having a strong corporate governance structure do not indicate an alter ego situation. These practices typically demonstrate that a corporation is being operated in accordance with its established legal framework and maintaining the necessary separateness from its shareholders. Hence, the failure to observe formalities directly indicates a disregard for the corporate entity, making it a valid basis for piercing the corporate veil.