COMMERCIAL LAW Questions and Answers

What does it mean to “pierce the corporate veil?”

Sometimes, courts will allow plaintiffs and creditors to receive compensation from corporate officers, directors, or shareholders for damages rather than limiting recovery to corporate assets. This procedure bypasses the usual corporate immunity for organizational wrongdoing, and may be imposed in a variety of situations. The specific criteria for piercing the corporate veil vary somewhat from state to state and may include the following:

• Courts may not allow owners to benefit from a corporation’s limited liability if the underlying business is indistinguishable from its owners.

• If a corporation is formed for fraudulent purposes.

• Courts may impose liability on the individuals controlling the business if a business fails to follow certain corporate formalities in areas such as record-keeping.