Piercing the Corporate Veil

Question 1

When do courts pierce the corporate veil?

Answer 1

Courts will hold shareholders, officers, and frescoers personally liable for corporate obligations when the corporation is abusing its legislative privileges of conducting business in the corporate form.

Question 2

What are the three situations in which courts most commonly pierce the corporate veil?

Answer 2

When (i) corporate formalities are ignored; (ii) when the corporation is inadequately capitalized at the outset; (iii) to prevent fraud.

Question 3

What does it mean to ignore corporate formalities?

Answer 3

It means that the corporation is being treated as an alter ego for the misfeasor. That is, the shareholders are using the corporation as an instrumentality and causing some basic injustice.

Question 4

Will passive investors who invested in good faith be held liable when the corporate veil is pierced?

Answer 4

No. Only the who managed the affairs of the company will be held liable.