The legal assumption that the acts of a corporation are not the actions of its shareholders so that the shareholders are exempt from liability for the corporation’s actions.
The idea of corporate veil has been extended to any entity that offers limited liability to its owners. The veil of the entity is what allows the owners to be protected from liability. As long as the entity does act independently from its owners. This is especially important if there is only one owner. Separation is important. Separate bank accounts, clear records of how money is spent on the business, and what money is paid to the owner. It is important that the identity of the entity is clearly distinguished from the owners. One of the clearest separations is financially. If you are the only owner of your business, there must be a distinction between the company’s finances and your personal finances. Entities must be allowed to stand on their own and have their own identity, so that the owner is protected by the limited liability offered by the corporate veil.