When a court pierces the corporate veil, the business owners home, bank accounts, investments, and other assets may be tapped to satisfy the. This kind of fraud can take place in different forms, but factors to be considered by the courts for piercing the corporate veil, especially in the usa, include the following. The lifting of corporate veil doctrine in hong kong opposed to a corporate shareholder. The legal distinction between your company and you as an individual is often referred to as the corporate veil. Piercing the corporate veil a short discussion cannot do justice to the developments in the area of corporate veil piercing in texas over the last 30 years. The national bituminous coal wage agreement of 1993 and the memorandum of understanding regarding job opportunities. Piercing the corporate veil mojahed al sebae talks about the extent to which the uae law recognises a llcs separate legal personality and the specific cases under which the corporate veil can be lifted.
Generally, the corporate form protects officers and shareholders from personal liability. Piercing the corporate veil, financial responsibility, and. The phrase piercing the corporate veil is used to describe the action of a court to hold corporate shareholders and llc owners personally liable for the debts and liabilities of a corporation. A 1991 study found that piercing the corporate veil was the most litigated issue in corporate law. Apr, 2017 for instance, if an individual member or shareholder treats the corporation as its alter ego, by comingling funds, a court may likely pierce the corporate veil and find personal liability. The doctrine of limited liability and the piercing of the. Piercing the corporate veil is appropriate when the unity between the corporation and its shareholders is such that.
As the precise facts and circumstances which can result in a piercing of the corporate veil will vary depending upon state law, and as piercing the corporate veil is a factdependent inquiry, it is important to consult with a qualified lawyer when evaluating whether. Under georgia law, a party attempting to pierce the corporate veil must show abuse of the corporate form by proving the disputed corporation is either. Piercing the corporate veil and fraud nov 20 client publicationarticle. Employs the same twoprong analysis as in traditional veil piercing, but adds an additional step. Fraudulent transfers and piercing the corporate veil chapter 10 2 if a debtor files for bankruptcy, he admits that he is insolv ent and has cred itors who hold valid claim s. Piercing the corporate veil is a legal phrase that describes the owners of a corporation losing the limited liability that having a corporation provides them. Piercing the corporate veil, alter ego and successor liability. When courts pierce the corporate veil, they disregard the separateness of the corporation and hold a shareholder responsible for the corporations action as if it. A court may pierce the corporate veil to hold a party liable for the acts of a corporate entity if the entity is used for a fraudulent purpose or the party is the alter ego of the entity. Veil piercing is the most heavily litigated issue in corporate law, yet legal doctrine in this area is notoriously incoherent. With the enactment of the new companies act earlier this year, there has been much debate on various platforms about the liability of corporates and that of their officers, servants and directors. Courts are hesitant to pierce the corporate veil unless the factors strongly weigh in favor of doing so.
Laurence, attorney if you are a director, shareholder, or member of a corporation or llc, take the following steps to ensure that a court wont pierce your corporate veil. Corporate veils are only pierced when the shareholders or owners use the corporation in a fraudulent manner, or they fail to separate the business assets from their own. Well cover how to get and protect the corporate veil. Piercing the corporate veil is the legal jargon used to describe an action pursued against a company that ultimately leads to personal liability of the owners, shareholders, or members wherein the corporate. As a business owner, it is possible to pierce the corporate veil by not adhering to the formalities of owning a corporation. The author conducted a comprehensive search for corporate veil. Piercing the corporate veil legal definition of piercing the. The position has not been reached in the common law where it is possible to state with any degree of certainty the circumstances in which a court would pierce the veil. The three justifications for piercing the corporate veil. In order to promote justice, the presumption of limited liability must be occasionally rebutted and personal liability imposed on shareholders. Despite strong public policy f avo ri ng s hare hold er l im it ed li abil it y, cr edit ors repea ted ly try to collect corporate debts from corporate. A brief history of piercing the corporate veil mark cohen, j. How to avoid personal liability for your corporations.
The national bituminous coal wage agreement of 1993 and. Definition and analysis of piercing the corporate veil. Over time, case law has emerged supporting the doctrine of piercing the corporate veil, enabling courts to look behind a companys separate legal personality to. Page 2 of 2 of personal liability for corporate debt. Restructuring is usually associated with technological change, the. Piercing the corporate veil ray earnest the term piercing the corporate veil is a legal one which identifies the process where a court removes the protection provided individual members of a corporation for criminal activity, and makes these members responsible for their own actions. Pdf the concept of a company as a separate entity from its shareholders is well known and recognized in many common law and civil law jurisdictions find.
Significant undercapitalization of the business entity. Other courts have rejected the application of the single employer doctrine or corporate veil piercing principles and turned to general agency principles to determine whether a. His basic project is to document the process by which corporations came to have nearly all the same rights as individuals. Piercing the corporate veil for ship arrests and maritime attachments in the united states. In this article, we present the results of the first such study. As a general principle, corporations are recognized as legal entities separate from their shareholders, officers, and directors. The supreme court case prest v petrodel resources ltd 20 2 ac 415 addresses the issue of whether, and if so in what way, the court is competent to pierce the corporate veil save any specific. Despite dismissing the appeal in so far as it relied on piercing the veil of incorporation, the uks most senior judges went out of their way to acknowledge the existence of a general exception to the rule, based on the socalled evasion principle. Sep 02, 2014 this is called piercing the corporate veil.
But winklers contribution spans beyond his argument about piercing the corporate veil. Piercing the corporate veil through the mexican courts. This paper is written as a comparative study of the development of the corporate veil piercing doctrine throughout the years. Pdf piercing the corporate veil doctrine in comparative view.
Piercing the corporate veil in australia melbourne law school. The trustee has standing to bring suit to avoid fraudulent. Creditors of insolvent corporations often ask courts to pierce the corporate veil and hold shareholders personally liable for a corporate obligation. In conducting the research for their paper, which is titled the three justifications for piercing the corporate veil, macey and mitts performed a sophisticated data analysis on more than 9,000 opinions in search of instances where plaintiffs succeeding in uncovering the owners behind a corporate.
Bankruptcy court for the eastern district of virginia noted in cummings v. Corporations are separate entities from their shareholders, and in normal circumstances, if a corporation is sued, the individual shareholders and. The lifting of corporate veil doctrine in hong kong. A legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the companys debts and other obligations. Disregard of the corporate fiction in this manner is also referred to as piercing the corporate veil. Piercing the corporate veil refers to the judicially imposed exception to the separate legal entity principle, whereby courts disregard the separateness of the. According to the definition of black law dictionary, the piercing the corporate veil is the judicial act of imposing liability on otherwise immune corporate officers, directors and shareholders for the corporations wrongful acts. However, there has not been a comprehensive empirical study of the australian cases relating to piercing the corporate veil.
This concept known as piercing the corporate veil will be elaborated on in detail in this paper. Jul 15, 2019 the phrase piercing the corporate veil is used to describe the action of a court to hold corporate shareholders and llc owners personally liable for the debts and liabilities of a corporation. It agreed that the corporate veil of a corporation can be pierced if there are special circumstances. Piercing the corporate veil under the new companies act. Strategies regarding corporate veil piercing and alter ego doctrine july 31, 2018 12 opus e. What is the corporate veil and what happens if you pierce it. Piercing the corporate veil in minnesota requires a two part. This article summarises the principles by which a court may pierce the corporate veil in cases of fraud in light of recent case law. The paper seeks to charter the fraud exception and critically examines the statistics attached to circumstances where courts have readily pierced the corporate veil.
If you have not donewhat you need to do to legitimately keep that separation intact, a court may pierce the corporate veil that protects you from the financial or legal liabilities of your business. Piercing the corporate veil requires fulfillment of a twoprong test. Most efforts to pierce the corporate veil are rejected by the courts. Thus, protecting the corporate veil should be of utmost importance to business owners. The quintessential scenario for piercing the corporate veil, or disregarding the corporate entity, is an individual owner who undercapitalizes the corporation. Jun 21, 20 in doing so, it examines the courts treatment of the ground of fraud as a basis of piercing the corporate veil. Slaughter and may piercing the corporate veil and fraud. First, it is useful to examine the approach generally adopted to piercing the corporate veil in the common law. Pdf piercing the corporate veil nichol mabueladube. Approach of the uk court in piercing corporate veil article pdf available in ssrn electronic journal january 2011 with 11,327 reads how we measure reads. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owed. The doctrine is of crucial importance since it is the most litigated issue in corporate law. Section 218 of the 2008 companies act extends liability, while s 209 codifies the doctrine of piercing the corporate veil. Lifting of corporate law 1 free download as powerpoint presentation.
In many instances this proviso also aims to combat fraud, which is in the public interest. Michael2 abstract from the age long decision of house of lords in the case in salomon v. Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. Dec 20, 2019 however, if you, as the business owner, do not take steps to protect the corporate veil, you may no longer receive personal liability protection. Lord walker suggested in prest42 that the doctrine of piercing the corporate veil was merely a label to describe the disparate occasions on which some rule of law would produce apparent exceptions to the separate legal entity principle43 in salomon. When but only when the corporate veil may be pierced, a parent corporation may be charged with derivative cercla liability for its subsidiarys actions in operating a polluting facility. The five most common ways to pierce the corporate veil and. Apr 25, 2016 this video by a corporate law firm explains what is involved in piercing the corporate veil, what to look out for, and how to protect yourself. Employs the same twoprong analysis as in traditional veil piercing, but adds an additional step to ensure that innocent shareholders are not injured. This means creditors can go after the owners home, bank account, investments, and other assets to satisfy the corporate debt.
Under the alter ego theory of veil piercing, courts analyze the reality of corporate governance, not the form, examining the way the corporation. When this happens, the owners personal assets can be used to satisfy business debts and liabilities. What happens when a piercing the corporate veil occurs. Lifting of corporate law 1 piercing the corporate veil. When someone, even a corporation, sets up a dummy corporation just to avoid. The common law approach to piercing the corporate veil. Pdf approach of the uk court in piercing corporate veil. Bituminous coal wage agreement of 1988 1988 wage agreement, the union bargained for a jobs. Piercing the corporate veil is the most litigated issue in corpo rate law and yet it remains among the least understood. Piercing the corporate veil and fraud this article summarises the principles by which a court may pierce the corporate veil in cases of fraud in light of recent case law. Piercing the corporate veil unconscionable abuse under. This concept doesnt apply only to corporations, however. The purpose with examining this field of law is to establish firstly the swedish exceptions legal position and secondly what circumstances that constitute the exception in sweden. In doing so, it examines the courts treatment of the ground of fraud as a basis of piercing the corporate veil.
Mar 26, 2016 courts are increasingly prone to pierce the corporate veil when an owner fails to invest sufficient capital at the inception of a venture, disregards whatever corporate formalities have been created, pays dividends to him or herself and thereby leaving a creditor to go unpaid. A much rarer breed, but becoming increasingly popular, reverse veil piercing imposes liability on the corporation for the judgment against the individual. How to avoid piercing the corporate veil bizfilings. Where a court determines that a companys business was not conducted in. Pdf upon acquisition of legal personality a company enjoys certain attributes such as limited liability. The common law notion of piercing the corporate veil is applied to protect the interests of a companys creditors. A corporate entity may be disregarded and liability. A corporation offers strong protection to its shareholders. Analysis of the development is done by looking at the veil piercing doctrines under u.
T he limited liability company in the uae the company is one of the most commonly used and preferred legal form of companies. Before discussing the most important factors of veil piercing, it is important to understand what it means to pierce the corporate veil. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it incurs and the sole beneficiary of. Thompson t i introduction piercing the corporate veil is the most litigated issue in corporate law and yet it remains among the least understood. In my view, the principle that the court may be justified in piercing the corporate veil if a companys separate legal personality is being abused for the purpose of some relevant wrongdoing is well established in. Piercing the corporate veil is the common phrase used to describe this problem. This article undertakes a comparative study of corporate veil piercing doctrines under u. If a court pierces a companys corporate veil, the owners, shareholders, or members of a corporation or llc can be held personally liable for corporate debts.