20 FAQ About Piercing the Corporate Veil

This article answers common questions asked by people about piercing the corporate veil.

What is piercing the corporate veil?

Piercing the corporate veil refers to the legal concept of holding the shareholders or owners of a corporation personally liable for the debts or obligations of the corporation. This is typically done when the corporation has been used as a shield to protect the shareholders or owners from personal liability, and the court determines that it is necessary to hold the individuals responsible in order to achieve justice.

What is the purpose of piercing the corporate veil?

The purpose of piercing the corporate veil is to hold the shareholders or owners of a corporation personally liable for the debts or obligations of the corporation when it would be unjust to allow them to escape liability by hiding behind the corporate form. This may be necessary to achieve justice or to protect the interests of creditors, employees, or other parties.

When is piercing the corporate veil appropriate?

Piercing the corporate veil is typically only appropriate in cases where the corporation has been used as a shield to protect the shareholders or owners from personal liability, and the court determines that it is necessary to hold the individuals responsible in order to achieve justice. This may be necessary when the corporation has engaged in fraud or illegal activity, has failed to follow proper corporate formalities, has commingled assets, or has been undercapitalized.

How do courts decide whether to pierce the corporate veil?

Courts decide whether to pierce the corporate veil by considering the specific facts and circumstances of the case, as well as the laws of the jurisdiction in which the case is brought. They may consider a variety of factors, including the degree of control and domination exercised by the shareholders or owners over the corporation, the extent to which the corporation has followed proper corporate formalities, the degree of separation between the corporation and the shareholders or owners, and the extent to which the corporation has been used as a shield to protect the individuals from personal liability.

What are the factors courts consider when deciding whether to pierce the corporate veil?

The factors courts consider when deciding whether to pierce the corporate veil may include:

• The degree of control and domination exercised by the shareholders or owners over the corporation
• The extent to which the corporation has followed proper corporate formalities
• The degree of separation between the corporation and the shareholders or owners
• The extent to which the corporation has been used as a shield to protect the individuals from personal liability
• The extent to which the corporation has engaged in fraud or illegal activity
• The extent to which the corporation has been undercapitalized
• The extent to which the corporation has commingled assets

Can the corporate veil be pierced for both liability and ownership purposes?

Yes, the corporate veil can be pierced for both liability and ownership purposes. For example, if the court determines that the corporation has been used as a shield to protect the shareholders or owners from personal liability, it may pierce the corporate veil to hold the individuals personally responsible for the debts or obligations of the corporation. In addition, the court may pierce the corporate veil to determine the true ownership of the corporation, for example in cases where the ownership has been concealed or misrepresented.

Can the corporate veil be pierced for fraud or illegal activity?

Yes, the corporate veil can be pierced in cases of fraud or illegal activity. If the court determines that the corporation has been used as a shield to protect the shareholders or owners from personal liability for fraudulent or illegal conduct, it may pierce the corporate veil to hold the individuals responsible.

Can the corporate veil be pierced for tax purposes?

Yes, the corporate veil can be pierced for tax purposes in some cases. For example, if the court determines that the corporation has been used as a shield to evade taxes or to avoid paying taxes owed, it may pierce the corporate veil to hold the shareholders or owners personally liable for the taxes owed.

Can the corporate veil be pierced for creditors’ claims?

Yes, the corporate veil can be pierced for creditors’ claims in some cases. If the court determines that the corporation has been used as a shield to avoid paying debts owed to creditors, it may pierce the corporate veil to hold the shareholders or owners personally liable for the debts owed.

Can the corporate veil be pierced for employment-related claims?

Yes, the corporate veil can be pierced for employment-related claims in some cases. If the court determines that the corporation has been used as a shield to avoid paying employment-related obligations, such as wages or benefits, it may pierce the corporate veil to hold the shareholders or owners personally liable for the obligations owed.

Can the corporate veil be pierced for environmental claims?

Yes, the corporate veil can be pierced for environmental claims in some cases. If the court determines that the corporation has been used as a shield to avoid paying damages or fines related to environmental harm, it may pierce the corporate veil to hold the shareholders or owners personally liable for the damages or fines owed.

Can the corporate veil be pierced for shareholder disputes?

Yes, the corporate veil can be pierced for shareholder disputes in some cases. If the court determines that the corporation has been used as a shield to protect the shareholders or owners from personal liability in the context of a shareholder dispute, it may pierce the corporate veil to hold the individuals responsible.

Can the corporate veil be pierced in cases of corporate wrongdoing?

Yes, the corporate veil can be pierced in cases of corporate wrongdoing in some cases. If the court determines that the corporation has been used as a shield to protect the shareholders or owners from personal liability for wrongdoing, it may pierce the corporate veil to hold the individuals responsible.

Can the corporate veil be pierced in cases of undercapitalization?

Yes, the corporate veil can be pierced in cases of undercapitalization in some cases. If the court determines that the corporation has been undercapitalized and has been used as a shield to protect the shareholders or owners from personal liability, it may pierce the corporate veil to hold the individuals responsible.

Can the corporate veil be pierced in cases of alter ego liability?

Yes, the corporate veil can be pierced in cases of alter ego liability in some cases. Alter ego liability occurs when the court determines that the corporation is essentially a alter ego or agent of the shareholders or owners, and is being used as a shield to protect the individuals from personal liability. If the court finds that alter ego liability exists, it may pierce the corporate veil to hold the shareholders or owners personally liable for the debts or obligations of the corporation.

Can the corporate veil be pierced in cases of inadequate corporate formalities?

Yes, the corporate veil can be pierced in cases of inadequate corporate formalities in some cases. If the court determines that the corporation has not followed proper corporate formalities, such as holding regular meetings of the board of directors or keeping proper records, and has been used as a shield to protect the shareholders or owners from personal liability, it may pierce the corporate veil to hold the individuals responsible.

Can the corporate veil be pierced in cases of commingling of assets?

Yes, the corporate veil can be pierced in cases of commingling of assets in some cases. If the court determines that the corporation has improperly mixed its assets with the personal assets of the shareholders or owners, and has been used as a shield to protect the individuals from personal liability, it may pierce the corporate veil to hold the individuals responsible.

Can the corporate veil be pierced in cases of improper corporate control or domination?

Yes, the corporate veil can be pierced in cases of improper corporate control or domination in some cases. If the court determines that the shareholders or owners have exercised too much control or domination over the corporation, and have used the corporation as a shield to protect themselves from personal liability, it may pierce the corporate veil to hold the individuals responsible.

Can the corporate veil be pierced in cases of fraud or misrepresentation?

Yes, the corporate veil can be pierced in cases of fraud or misrepresentation in some cases. If the court determines that the corporation has been used as a shield to protect the shareholders or owners from personal liability for fraudulent or misrepresentative conduct, it may pierce the corporate veil to hold the individuals responsible.

Can the corporate veil be pierced in cases of corporate disregard?

Yes, the corporate veil can be pierced in cases of corporate disregard in some cases. Corporate disregard occurs when the corporation fails to follow proper corporate formalities or otherwise disregards the corporate form, and has been used as a shield to protect the shareholders or owners from personal liability. If the court determines that corporate disregard has occurred, it may pierce the corporate veil to hold the shareholders or owners personally responsible for the debts or obligations of the corporation.