Piercing The Corporate Veil
Piercing the Corporate Veil
Piercing the corporate veil - describes a legal decision to treat the rights of a corporation as the rights or liabilities of its shareholders or directors. Usually a corporation is treated as a separate legal entity, which is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owed. Common law countries usually uphold this principle of seperate persons, but in exceptional situations may pierce the corporate veil. However, to prevent Piercing the Corporate Veil you must do more than merely form a business entity and register it with the state. There are a host of ongoing governance requirements and formalities for business owners. If challenged in a lawsuit, IRS audit, or other action, you must be able to prove that you have a bona fide business entity. You will be challenged to show that you have a real business, not just a shell created to dodge personal liability. Protecting business owners by helping them keep the rules of corporate governance. This is to prevent "Piecing or Lifting the Corporate Veil".
Piercing the Corporate Veil - Theories of Contract
Piercing corporate veil is not the only means by which a director or officer of a corporation can be held liable for the actions of the corporation. Liability can be established through conventional theories of contract, agency, or tort law. For example, in situations where a director or officer acting on behalf of a corporation personally commits a tort, he and the corporation are jointly liable and it is unnecessary to discuss the issue of piercing the corporate veil. The doctrine is often used in cases where liability is found, but the corporation is insolvent.