The Legal Concept of Lifting the Corporate Veil

Topics: Balance sheet, Corporation, Asset Pages: 2 (607 words) Published: June 3, 2013
Question 10
What is a corporate veil? Under what circumstances a corporate veil shall be lifted? Corporate veil is a legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company's debts and other obligations. This protection is not ironclad or impenetrable. Where a court determines that a company's business was not conducted in accordance with the provisions of corporate it may hold the shareholders personally liable for the company's obligations under the legal concept of lifting the corporate veil. One of the biggest advantages to incorporating a business is that the principals of the corporation enjoy broad protection from being held personally responsible for the debts and liabilities of the corporation. That is, creditors can reach the corporation's assets, but once those assets are exhausted they cannot ordinarily also reach the personal assets of the owners or shareholders of the corporation. Under some circumstances, those to whom the corporation is liable will attempt to "pierce the corporate veil", the legal term used to describe an action to have the corporation set aside for purposes of the litigation such that personal liability attaches, and personal assets can be reached. An action to pierce the corporate veil normally arises in civil litigation when the corporation is believed to have inadequate assets to cover its liabilities, and the plaintiff alleges that the corporation is actually a “sham” - that is, the corporation is not really a distinct individual, but is merely an extension or "alter ego" of its shareholders, being used to advance their private interests or to perpetrate a fraud. As the precise facts and circumstances which can result in a piercing of the corporate veil will vary depending upon state law, and as this is a fact-dependent inquiry, it is important to consult with a qualified lawyer when evaluating whether the...
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