Piercing the corporate veil

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. 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. Common law countries usually uphold this principle of separate personhood, but in exceptional situations may "pierce" or "lift" the corporate veil.

A simple example would be where a businessperson has left their job as a director and has signed a contract to not compete with the company they have just left for a period of time. If they set up a company which competed with their former company, technically it would be the company and not the person competing.^[1] But it is likely a court would say that the new company was just a "sham" or a "cover" and that, as the new company is completely owned and controlled by one person, the former employee is deliberately choosing to compete, placing them in breach of that non-competing contract.

Despite the terminology used which makes it appear as though a shareholder's limited liability emanates from the view that a corporation is a separate legal entity, the reality is that the entity status of corporations has almost nothing to do with shareholder limited liability.^[2] For example, English law conferred entity status on corporations long before shareholders were afforded limited liability. Similarly, the United States' Revised Uniform Partnership Act confers entity status on partnerships, but also provides that partners are individually liable for all partnership obligations. Therefore, this shareholder limited liability emanates mainly from statute.^[2]

^ See, e.g., Henn, Harry G.; Alexander, John R. (1983). Law of Corporations (3 ed.). West Group. ISBN 0314092293., ch 7, 344, n 2 for a list of terms the court uses. They are, mere adjunct, agent, alias, alter ego, alter idem, arm, blind, branch, buffer, cloak, coat, corporate double, cover, creature, curious reminiscence, delusion, department, dry shell, dummy, fiction, form, formality, fraud on the law, instrumentality, mouthpiece, name, nominal identity, phrase, puppet, screen, sham, simulacrum, snare, stooge, subterfuge, tool.
^ ^a ^b Eisenberg, Melvin A. (2005). Corporations and Other Business Organizations, Cases and Materials (9 ed.). Foundation Press. ISBN 1587788799., ch 4, 171

[1] See, e.g., Henn, Harry G.; Alexander, John R. (1983). Law of Corporations (3 ed.). West Group. ISBN 0314092293., ch 7, 344, n 2 for a list of terms the court uses. They are, mere adjunct, agent, alias, alter ego, alter idem, arm, blind, branch, buffer, cloak, coat, corporate double, cover, creature, curious reminiscence, delusion, department, dry shell, dummy, fiction, form, formality, fraud on the law, instrumentality, mouthpiece, name, nominal identity, phrase, puppet, screen, sham, simulacrum, snare, stooge, subterfuge, tool.

[MelvinAron-2] Eisenberg, Melvin A. (2005). Corporations and Other Business Organizations, Cases and Materials (9 ed.). Foundation Press. ISBN 1587788799., ch 4, 171

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