Pierce The Corporate Veil Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Pierce The Corporate Veil, written in plain English, along with examples of how it is used.
What is Pierce The Corporate Veil?
v. In a corporate entity piercing the corporate veil is a method which is used to make the shareholders liable for the acts of the corporation unlike the limited liability benefit which they are entitled as shareholders.
History and Meaning of Pierce The Corporate Veil
Piercing the corporate veil is a legal concept that holds business owners responsible for the liabilities of the business by disregarding the corporate entity. The term "piercing the corporate veil" stems from the idea of looking beyond the corporate form as a shield and seeing the individuals responsible for the corporation's actions. The doctrine has been used in many legal cases to help people recover damages from corporations.
In general, the corporate veil is considered an important aspect of the corporate form. It shields the personal assets of business owners from corporate liabilities. However, under certain circumstances, courts may "pierce the corporate veil" by finding that a company is simply a "sham," or an alter-ego of its owners. This means that the court will consider the business owner and the corporation as one for purposes of liability, and any corporate debts or legal action may fall on the business owner.
Examples of Pierce The Corporate Veil
If a company does not respect the legal formalities and mixes its finances with that of its shareholders or directors, then a court may pierce the corporate veil to make the shareholders directly liable for the debts of the company.
Piercing the corporate veil can also occur if a company is found to be a mere alter ego of its owner, for instance when a person uses the business as a shell to conduct personal affairs.
In cases of fraud or illegal activities, shareholders and directors may be held liable even if they operate through a limited liability company or corporation, and the corporate veil can be pierced.
Legal Terms Similar to Pierce The Corporate Veil
Alter ego - The doctrine of piercing the corporate veil is often referred as applying the alter ego test where the court looks beyond the corporate form to determine whether the corporation is an alter ego or an extension of individuals.
Limited Liability - Limited liability is simply the benefit that shareholders receive by forming a corporation. This is the protection from being held personally responsible for the actions of the business entity.
Corporate Form - Refers to the characteristics of a corporation as a distinct legal person, separate from its shareholders.