The Corporate Veil Is Thinner Than You Think

When I started getting serious advice about company structure, everyone told me the same thing: set up a holding company. Separate the operating business from the assets. Protect yourself.

I did exactly that.

It didn't protect me.

This isn't a post about bad advice. It's about the gap between what a holding structure is supposed to do and what it actually does when pressure is applied.

What the Structure Is Supposed to Do

The theory is clean. HoldCo owns the shares of OpCo. Assets sit in HoldCo. Operating risk sits in OpCo. If OpCo fails, HoldCo — and your personal assets — are protected.

On paper, correct. In practice, it depends entirely on how you run it.

What Durchgriffshaftung Actually Means

Durchgriffshaftung — literally "piercing through liability" — is the legal principle that allows courts to hold a parent company or its director personally liable for the obligations of a subsidiary.

German courts apply it when the formal separation between entities exists only on paper. The tests are roughly:

Operational commingling: Same address. Same managing director. Same email domain. Same bank account used interchangeably. Same tools.

Capitalization failures: If OpCo was systematically undercapitalized and HoldCo drained its resources, the separation can be treated as a device to defraud creditors.

Unified business conduct: If both entities functioned as one economic unit — same staff, same clients, same projects — a court will treat them as one.

When my agency structure collapsed, I had: same address, same GF, same email domain, same tools. The only thing that was separate was the registration number.

That wasn't enough.

The Investor Veto Problem

There's a second failure mode almost nobody talks about: minority investor veto rights.

When my operating company failed, my HoldCo still held shares in DataVirtuality — the company I'd co-founded earlier, which was still operating and growing. Those shares had real value.

Except: the shareholder agreement gave existing investors veto rights over management buybacks. The management team couldn't buy me out even if they wanted to. I couldn't sell. My largest remaining asset was frozen.

The holding structure had assets. Those assets were inaccessible.

What Actually Protects You

I am not a lawyer. The following reflects lived experience and should be verified with qualified legal counsel for your situation.

Real separation requires real operations. Different registered addresses — not just different floors. Different managing directors. Separate bank accounts that are never commingled. Formal loan agreements if money moves between entities.

Shareholder agreements need exit provisions. Understand what happens to your shares under distress. Drag-along rights, buyback mechanisms, and pre-emption rights all behave differently under stress than they do in the pitch deck.

The 15-minute test. Ask yourself: if a court-appointed administrator looked at your two entities for 15 minutes, would they see two genuinely separate businesses — or one business with two letterheads?

If it's the latter, your structure is decorative.

The Honest Version

I built a structure that looked right on paper and operated as one company in practice. When the crisis came, the law saw through it immediately.

Legal protection is not a document you sign once. It's a set of ongoing operational behaviors.

Most founders learn this the hard way. You don't have to.

---

If you have a multi-entity structure and aren't sure it would survive scrutiny — a 30-minute review call costs nothing.

Note: This article reflects personal experience and general observations. It is not legal advice. Consult a qualified German business lawyer for your specific situation.