Legal Question in Business Law in California

Re: California Corporation Protection

I don't think you're going to find much about this in the codes at all. Your question involves the interplay of two legal concepts, neither of which (to my knowledge) is set forth in any statute, but both are age-old legal concept developed by tradition including numerous appellate court decisions.

The first of these is the concept that a corporation is a legal person. A corporation is a distinct legal entity separate and apart from its members or shareholders and from its directors or officers. The rights and liabilities of corporations are distinct from the persons composing it. Thus a shareholder is not the employer of those working for the corporation, nor the owner of the corporate property. Furthermore, an agreement by a shareholder of a corporation is not a promise by the corporation and conversely, a shareholder is not a party to a corporate agreement.

The second concept, "piercong the corporate veil," is an equitable principle which places a limit on the separateness of corporations from the people that own and run them, when those very people are themselves disregarding the separateness of the corporate entity. If the owners don't recognize and abide by the separate nature of their corporation, but instead use the corporation as though it were an extension of themselves, an "alter ego" (legal Latin for "other self"), courts will in turn likewise disregard the corporate entity and impose personal liability on the corporate insiders as though the corporation did not exist.

Going after corporate assets for an officer's personal liability, the example you mention, is called "reverse piercing." Usually, piercing works the other way around, i.e. the creditor is allowed to collect the corporation's debts to him from the insider. However, reverse piercing does occasionally occur, though it is less common than ordinary piercing, which in itself is also relatively uncommonly used as a remedy.