Corporate Veil
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Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a
corporation A corporation or body corporate is an individual or a group of people, such as an association or company, that has been authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law as ...
as the rights or liabilities of its
shareholder A shareholder (in the United States often referred to as stockholder) of corporate stock refers to an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the ...
s. Usually a corporation is treated as a
separate legal person In law, a legal person is any person or legal entity that can do the things a human person is usually able to do in law – such as enter into contracts, sue and be sued, own property, and so on. The reason for the term "''legal'' person" is t ...
, which is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owed.
Common law Common law (also known as judicial precedent, judge-made law, or case law) is the body of law primarily developed through judicial decisions rather than statutes. Although common law may incorporate certain statutes, it is largely based on prece ...
countries usually uphold this principle of separate
personhood Personhood is the status of being a person. Defining personhood is a controversial topic in philosophy and law and is closely tied with legal and political concepts of citizenship, equality, and liberty. According to law, only a legal person (ei ...
, 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 A contract is an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more parties. A contract typically involves consent to transfer of goods, services, money, or promise to transfer any of thos ...
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. 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 Limited liability is a legal status in which a person's financial Legal liability, liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company, or joint venture. If a company that provides limi ...
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., ch 4, 171 For example, English law conferred entity status on corporations long before shareholders were afforded limited liability. Similarly, the United States'
Revised Uniform Partnership Act The Uniform Partnership Act (UPA), which includes revisions that are sometimes called the Revised Uniform Partnership Act (RUPA), is a uniform act (similar to a model statute), proposed by the National Conference of Commissioners on Uniform State L ...
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.


Basis for limited liability

Corporations exist in part to shield the personal assets of
shareholders A shareholder (in the United States often referred to as stockholder) of corporate stock refers to an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the ...
from personal liability for the debts or actions of a corporation. Unlike a general partnership or sole proprietorship in which the owner could be held responsible for all the debts of the company, a corporation traditionally limited the personal liability of the shareholders. Piercing the corporate veil typically is most effective with smaller privately held business entities (close corporations) in which the corporation has a small number of shareholders, limited assets, and recognition of separateness of the corporation from its shareholders would promote fraud or an inequitable result. There is no record of a successful piercing of the corporate veil for a publicly traded corporation because of the large number of shareholders and the extensive mandatory filings entailed in qualifying for listing on an exchange.


Germany

German corporate law developed a number of theories in the early 1920s for lifting the corporate veil on the basis of "domination" by a parent company over a subsidiary. These cases have led to an encompassing codification of group law provisions in the AktG 1965 (§§ 291 - 319 AktG). By contrast, a general doctrine of piercing the veil for abuse of the legal personality of the company has never really taken hold in Germany. It was advocated in the fundamental work of Rolf Serick, but rejected by the prevailing "Normanwendungslehre". After a few early cases, the German judiciary did not go down the route of establishing shareholder liability via piercing the veil. In particular, it rejected piercing the veil on grounds of material undercapitalization several times. Today, the only remaining case of shareholder liability via piercing of the corporate veil is the inextricable commingling of the assets of the company and the shareholder ("Vermögensvermischung"). But shareholders can be held liable in tort (§ 826 BGB) in the case of an interference destroying the corporation ("existenzvernichtender Eingriff"). The corporation must not be stripped, without compensation, of funds that are required to meet its foreseeable future obligations. If these are taken away by the shareholder the corporation may claim compensation, even in an insolvency proceeding. The concept adds a solvency test element to the balance-sheet based rules of capital maintenance under §§ 30, 31 GmbHG and §§ 57, 62 AktG.


United Kingdom

The corporate veil in UK company law is pierced very rarely. After a series of attempts by the Court of Appeal during the late 1960s and early 1970s to establish a theory of economic reality, and a doctrine of control for lifting the veil, the House of Lords reasserted an orthodox approach. According to a 1990 case at the Court of Appeal, ''
Adams v Cape Industries plc ''Adams v Cape Industries plc'' 990Ch 433 is a UK company law case on separate legal personality and limited liability of shareholders. The case also addressed long-standing issues under the English conflict of laws as to when a company would ...
'', the only true "veil piercing" may take place when a company is set up for fraudulent purposes, or where it is established to avoid an existing obligation. However, cases were rare and their justification in light of the Salomon principle remained doubtful. In VTB Capital, Lord Neuberger sympathised with rejecting the doctrine altogether, but left the issue undecided because it did not matter for the outcome. Soon afterwards, in Prest v Petrodel, a divorce case where the matrimonial home was not held by the husband but by his company, the Supreme Court confirmed the existence of the doctrine in English law, but narrowed it down to practical irrelevance. The "fraud exception" was dismissed. According to the leading judgement by Lord Sumption, piercing the veil is a subsidiary remedy of last resort that only covers the avoidance of existing obligations ("evasion principle", as opposed to the cases of the "concealment principle" that does not give rise to a claim). On closer analysis, this was said
obiter ''Obiter dictum'' (usually used in the plural, ''obiter dicta'') is a Latin phrase meaning "said in passing",''Black's Law Dictionary'', p. 967 (5th ed. 1979). that is, any remark in a legal opinion that is "said in passing" by a judge or arbitra ...
because the Court reached the desired outcome (attribution of the family home to the assets of the husband) by applying trust law. Nevertheless, Prest v Petrodel is generally assumed to state the current law in the UK, even though the restriction of "abuse" to evasion only can be questioned and there were statements in Prest v Petrodel that supported a broader approach. It is noteworthy that under English law, piercing the veil can never be used to make shareholders pay for contractual debts of the company because they have not been party to that contract. In the past, the veil was sometimes ignored in the process of interpreting a statute, and as a matter of tort law it is open as a matter of authority that a direct duty of care may be owed by the managers of a parent company to accident victims of a subsidiary.


Tort victims and employees

Tort victims and employees, who did not contract with a company or have very
unequal bargaining power Inequality of bargaining power in law, economics and social sciences refers to a situation where one Party (law), party to a Bargaining, bargain, contract or Gentlemen's agreement, agreement, has more and better alternatives than the other party. ...
, have been held to be exempted from the rules of limited liability in ''
Chandler v Cape plc ''Chandler v Cape plc'' [2012EWCA Civ 525is a decision of the Court of Appeal which addresses the availability of damages for a tort victim from a parent company, in circumstances where the victim suffered industrial injury during employment by ...
''. In this case, the claimant was an employee of Cape plc's wholly owned subsidiary, which had gone insolvent. He successfully brought a claim in tort against Cape plc for causing him an asbestos disease, asbestosis. Arden LJ in the Court of Appeal held that if the parent had interfered in the operations of the subsidiary in any way, such as over trading issues, then it would be attached with responsibility for health and safety issues. Arden LJ emphasised that piercing the corporate veil was not necessary. There would be direct liability in tort for the parent company if it had interfered in the subsidiary's affairs. The High Court before it had held that liability would exist if the parent exercised control, all applying ordinary principles of tort law about liability of a third party for the actions of a tortfeasor. The restrictions on lifting the veil, found in contractual cases made no difference. This jurisdiction has been settled to play an important role in the human rights cases and.


"Single economic unit" theory

Within the context of
competition law Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust ...
, "undertakings" (which may encompass one or more legal persons) might be held liable for relevant infringements. By contrast, it is an axiomatic principle of
English company law British company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary legal vehicle to ...
that a company is an entity separate and distinct from its members, who are liable only to the extent that they have contributed to the company's capital: ''
Salomon v Salomon is a landmark UK company law case. The effect of the House of Lords' unanimous ruling was to uphold firmly the doctrine of corporate personality, as set out in the Companies Act 1862, so that creditors of an insolvent company could not sue the ...
''
897 __NOTOC__ Year 897 ( DCCCXCVII) was a common year starting on Saturday of the Julian calendar. Events By place Europe * Spring – King Lambert II travels to Rome with his mother, Queen Ageltrude and brother Guy IV, Lombard duke ...
The effect of this rule is that the individual subsidiaries within a conglomerate will be treated as separate entities and the parent cannot be made liable for the subsidiaries' debts on insolvency. Furthermore, it can create subsidiaries with inadequate capitalisation and secure loans to the subsidiaries with fixed charges over their assets, despite the fact that this is "not necessarily the most honest way of trading". The rule also applies in Scotland. While the secondary literature refers to different means of "lifting" or "piercing" the veil (see Ottolenghi (1959)), judicial dicta supporting the view that the rule in Salomon is subject to exceptions are thin on the ground.
Lord Denning MR Alfred Thompson Denning, Baron Denning, (23 January 1899 – 5 March 1999), was an English barrister and judge. He was called to the Bar of England and Wales in 1923 and became a King's Counsel in 1938. Denning became a judge in 1944 when he w ...
outlined the theory of the "single economic unit" - wherein the court examined the overall business operation as an economic unit, rather than strict legal form - in ''
DHN Food Distributors v Tower Hamlets ''DHN Food Distributors Ltd v Tower Hamlets London Borough Council'' 9761 WLR 852 is a UK company law case where, on the basis that a company should be compensated for loss of its business under a compulsory acquisition order, a group was recog ...
''.
976 Year 976 ( CMLXXVI) was a leap year starting on Saturday of the Julian calendar. Events By place Byzantine Empire * January 10 – Emperor John I Tzimiskes dies at Constantinople, after returning from a second campaign against ...
/ref> However this has largely been repudiated and has been treated with caution in subsequent judgments. In ''
Woolfson v Strathclyde BC ''Woolfson v Strathclyde Regional Council'' [1978UKHL 5is a UK company law case concerning piercing the corporate veil. Facts A bridal clothing shop at 53-61 St George's Road was Compulsory purchase, compulsorily purchased by the Glasgow Corpora ...
'', the House of Lords held that it was a decision to be confined to its facts (the question in DHN had been whether the subsidiary of the plaintiff, the former owning the premises on which the parent carried out its business, could receive compensation for loss of business under a
compulsory purchase order A compulsory purchase order (CPO; , ) is a legal function in the United Kingdom and Ireland that allows certain bodies to obtain land or property without the consent of the owner. It may be enforced if a proposed development is considered one for ...
notwithstanding that under the rule in Salomon, it was the parent and not the subsidiary that had lost the business). Likewise, in ''
Bank of Tokyo v Karoon '' Bank of Tokyo Ltd v Karoon'' 987AC 45 is a conflict of laws case, which also relates to UK company law and piercing the corporate veil. Facts The Bank of Tokyo was a Japanese Bank operating in London and a wholly owned subsidiary of the B ...
'', Lord Goff, who had concurred in the result in ''DHN'', held that the legal conception of the corporate structure was entirely distinct from the economic realities. The "single economic unit" theory was likewise rejected by the CA in ''
Adams v Cape Industries ''Adams v Cape Industries plc'' 990Ch 433 is a UK company law case on separate legal personality and limited liability of shareholders. The case also addressed long-standing issues under the English conflict of laws as to when a company would be ...
'', where Slade LJ held that cases where the rule in Salomon had been circumvented were merely instances where they did not know what to do. The view expressed at first instance by HHJ Southwell QC in '' Creasey v Breachwood'', that English law "definitely" recognised the principle that the corporate veil could be lifted, was described as a heresy by Hobhouse LJ in ''
Ord v Bellhaven ''Ord v Belhaven Pubs Ltd'' 9982 BCLC 447 is a UK company law case concerning piercing the corporate veil. Facts Mr and Mrs Ord ran the Fox Inn in Stamford, Lincolnshire. They were in an ongoing dispute with the freehold owner, Belhaven Pubs Lt ...
'', and these doubts were shared by Moritt V-C in ''
Trustor v Smallbone (No 2) is a UK company law case concerning piercing the corporate veil. Facts Mr Smallbone had been the managing director of Trustor AB, and it was claimed that in breach of fiduciary duty he transferred money to a company that he owned and controlle ...
'': the corporate veil cannot be lifted merely because justice requires it. Despite the rejection of the "justice of the case" test, it is observed from judicial reasoning in veil piercing cases that the courts employ "equitable discretion" guided by general principles such as mala fides to test whether the corporate structure has been used as a mere device.


Perfect obligation

The cases of ''
Tan v Lim Tan or TAN may refer to: Arts and entertainment * ''Tan'', an album by the Polish rock band Kult * TAN (group), South Korean boy band * ''Tan'' (newspaper), a newspaper in Turkey * ''Tan'' (weekly newspaper), a newspaper in Kosovo Businesses ...
'', where a company was used as a "façade" (per Russell J.) to
defraud In law, fraud is intent (law), intentional deception to deprive a victim of a legal right or to gain from a victim unlawfully or unfairly. Fraud can violate Civil law (common law), civil law (e.g., a fraud victim may sue the fraud perpetrato ...
the creditors of the defendant and ''
Gilford Motor Co Ltd v Horne ''Gilford Motor Co Ltd v Horne'' 933Ch 935 is a UK company law British company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Dire ...
'', where an injunction was granted against a trader setting up a business which was merely as a vehicle allowing him to circumvent a covenant in restraint of trade are often said to create a "
fraud In law, fraud is intent (law), intentional deception to deprive a victim of a legal right or to gain from a victim unlawfully or unfairly. Fraud can violate Civil law (common law), civil law (e.g., a fraud victim may sue the fraud perpetrato ...
" exception to the separate corporate personality. Similarly, in ''
Gencor v Dalby ''Gencor ACP Ltd v Dalby'' [2000EWHC 1560 (Ch)is a UK company law case concerning piercing the corporate veil. Facts Mr Dalby was a director of the ACP group of companies, including Gencor ACP Ltd. He dishonestly diverted assets and opportunitie ...
'', the tentative suggestion was made that the corporate veil was being lifted where the company was the "alter ego" of the defendant. In truth, as Lord Cooke (1997) has noted extrajudicially, it is because of the separate identity of the company concerned and not despite it that equity intervened in all of these cases. They are not instances of the corporate veil being pierced but instead involve the application of other rules of law. Finally, the "fraud exception" was rejected in ''Prest v Petrodel Resources Ltd''.


Reverse piercing

There have been cases in which it is to the advantage of the shareholder to have the corporate structure ignored. Courts have been reluctant to agree to this. The often cited case ''
Macaura v Northern Assurance Co Ltd ''Macaura v Northern Assurance Co Ltd'' 925AC 619 appeared before the House of Lords concerning the principle of lifting the corporate veil. Unusually, the request to do so was in this case made by the corporation's owner. Facts Mr Macaura own ...
'' is an example of that. Mr Macaura was the sole owner of a company he had set up to grow timber. The trees were destroyed by fire but the insurer refused to pay since the policy was with Macaura (not the company) and he was not the owner of the trees. The
House of Lords The House of Lords is the upper house of the Parliament of the United Kingdom. Like the lower house, the House of Commons of the United Kingdom, House of Commons, it meets in the Palace of Westminster in London, England. One of the oldest ext ...
upheld that refusal based on the separate
legal personality Legal capacity is a quality denoting either the legal aptitude of a person to have rights and liabilities (in this sense also called transaction capacity), or the personhood itself in regard to an entity other than a natural person (in this sen ...
of the company.


Criminal law

In English criminal law there have been cases in which the courts have been prepared to pierce the veil of incorporation. For example, in confiscation proceedings under the
Proceeds of Crime Act 2002 The Proceeds of Crime Act 2002 (c. 29) (POCA) is an act of the Parliament of the United Kingdom which provides for the confiscation or civil recovery of the proceeds from crime and contains the principal money laundering legislation in the ...
monies received by a company can, depending upon the particular facts of the case as found by the court, be regarded as having been 'obtained' by an individual (who is usually, but not always, a director of the company). In consequence those monies may become an element in the individual's 'benefit' obtained from criminal conduct (and hence subject to confiscation from him). The position regarding 'piercing the veil' in English criminal law was given in the Court of Appeal judgment in the case of ''
R v Seager R, or r, is the eighteenth letter of the Latin alphabet, used in the modern English alphabet, the alphabets of other western European languages and others worldwide. Its name in English is ''ar'' (pronounced ), plural ''ars''. The lette ...
'' in which the court said (at para 76):


United States

In the United States, corporate veil piercing is the most litigated issue in corporate law. Although courts are reluctant to hold an active shareholder liable for actions that are legally the responsibility of the corporation, even if the corporation has a single shareholder, they will often do so if the corporation was markedly noncompliant with corporate formalities, to prevent fraud, or to achieve equity in certain cases of undercapitalization. In most jurisdictions, no bright-line rule exists and the ruling is based on common law precedents. In the United States, different theories, most important "alter ego" or "instrumentality rule", attempted to create a piercing standard. Mostly, they rest upon three basic prongs—namely: * "unity of interest and ownership": the separate personalities of the shareholder and corporation cease to exist, * "wrongful conduct": wrongful action taken by the corporation, and * "proximate cause": as a reasonably foreseeable result of the wrongful action, harm was caused to the party that is seeking to pierce the corporate veil. However, the theories failed to articulate a real-world approach which courts could directly apply to their cases. Thus, courts struggle with the proof of each prong and rather analyze all given factors. This is known as "totality of circumstances". Generally, the plaintiff has to prove that the incorporation was merely a formality and that the corporation neglected corporate formalities and protocols, such as voting to approve major
corporate action A corporate action is an event initiated by a public company that brings or could bring an actual change to the debt securities—Share capital, equity or debt—issued by the company. Corporate actions are typically agreed upon by a company's ...
s in the context of a duly authorized corporate meeting. This is quite often the case when a corporation facing legal liability transfers its assets and business to another corporation with the same management and shareholders. It also happens with single person corporations that are managed in a haphazard manner. As such, the veil can be pierced in both civil cases and where regulatory proceedings are taken against a shell corporation.


Factors for courts to consider

Factors that a court may consider when determining whether or not to pierce the corporate veil include the following: * Absence or inaccuracy of corporate records; * Concealment or misrepresentation of members; * Failure to maintain arm's length relationships with related entities; * Failure to observe corporate formalities in terms of behavior and documentation; * Intermingling of
assets In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...
of the corporation and of the shareholder; * Manipulation of assets or liabilities to concentrate the assets or liabilities; * Non-functioning corporate officers and/or directors; * Significant undercapitalization of the business entity (capitalization requirements vary based on industry, location, and specific company circumstances); * Siphoning of corporate funds by the dominant shareholder(s); * Treatment by an individual of the assets of corporation as his/her own; * Use of the corporation as a façade for personal dealings (alter ego theory) Not all of these factors need to be met in order for the court to pierce the corporate veil. Further, some courts might find that one factor is so compelling in a particular case that it will find the shareholders personally liable. For example, many large corporations do not pay dividends, without any suggestion of corporate impropriety, but particularly for a small or close corporation the failure to pay dividends may suggest financial impropriety.


Examples

* ''
Berkey v. Third Avenue Railway ''Berkey v. Third Avenue Railway Co'' 244 N.Y. 84 (1926) is a classic veil piercing case by Judge Benjamin N. Cardozo in United States corporate law. Facts Minnie Berkey had an accident on a tram line operated by the Forty-second Street, etc., ...
'', 244 N.Y. 602, 155 N.E. 914 (1927).
Benjamin Cardozo Benjamin Nathan Cardozo (May 24, 1870 – July 9, 1938) was an American lawyer and jurist who served on the New York Court of Appeals from 1914 to 1932 and as an Associate Justice of the Supreme Court of the United States from 1932 until his deat ...
decided there was no right to pierce the veil for a personal injury victim. * ''
Perpetual Real Estate Services, Inc. v. Michaelson Properties, Inc. ''Perpetual Real Estate Services, Inc. v. Michaelson Properties, Inc.'' 974 F.2d 545 (4th Cir. 1992), is a US corporate law case, concerning piercing the corporate veil. Facts Aaron Michaelson (Aaron) formed Michaelson Properties, Inc. (Properti ...
'' 974 F.2d 545 (4th Cir. 1992). The Fourth Circuit held that no piercing could take place merely to prevent "unfairness" or "injustice", where a corporation in a real estate building partnership could not pay its share of a lawsuit bill * ''
Fletcher v. Atex, Inc. ''Fletcher v. Atex, Inc.'', 68 F.3d 1451 (2d Cir. 1995), is a Piercing the corporate veil, veil piercing case by Judge José A. Cabranes in corporation law. Facts Plaintiffs filed a suit against Atex and Kodak alleging that repetitive stress inj ...
'', 68 F.3d 1451 (2d Cir. 1995), finding insufficient that a parent company so dominated the operations of a subsidiary that the corporate veil should be disregarded. * ''
Minton v. Cavaney Minton may refer to: Places * Minton, Saskatchewan, a Canadian village * Minton, Shropshire, a hamlet in the parish of Church Stretton, England * Minton, a fictional town in New England featured in the 1860 novel ''The Ebony Idol'' by G.M. Flan ...
'', 56 Cal.2d 576 (1961). Mr. Minton's daughter drowned in the public swimming pool owned by Mr. Cavaney. Then-Associate Justice
Roger J. Traynor Roger John Traynor (February 12, 1900 – May 14, 1983) was the 23rd Chief Justice of California (1964–1970) and an associate justice of the Supreme Court of California from 1940 to 1964. Previously, he had served as a Deputy Attorney General ...
(later Chief Justice) of the
Supreme Court of California The Supreme Court of California is the Supreme court, highest and final court of appeals in the judiciary of California, courts of the U.S. state of California. It is headquartered in San Francisco at the Earl Warren Building, but it regularly ...
held: "The equitable owners of a corporation, for example, are personally liable...when they provide inadequate capitalization and actively participate in the conduct of corporate affairs." * ''
Kinney Shoe Corp. v. Polan ''Kinney Shoe Corp v. Polan'', 939 F.2d 209 (4th Cir. 1991), is a US corporate law case, concerning piercing the corporate veil. Facts Kinney Shoe Corp sued Mr Lincoln M Polan to pay money outstanding on a sub-lease by the "Industrial Realty Com ...
'', 939 F.2d 209 (4th Cir. 1991). The veil was pierced where its enforcement would not have matched the purpose of limited liability. Here a corporation was undercapitalized and was only used to shield a shareholder's other company from debts.


Internal Revenue Service

In recent years, the
Internal Revenue Service The Internal Revenue Service (IRS) is the revenue service for the Federal government of the United States, United States federal government, which is responsible for collecting Taxation in the United States, U.S. federal taxes and administerin ...
(IRS) in the United States has made use of corporate veil piercing arguments and logic as a means of recapturing
income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. F ...
,
estate Estate or The Estate may refer to: Law * Estate (law), a term in common law for a person's property, entitlements and obligations * Estates of the realm, a broad social category in the histories of certain countries. ** The Estates, representativ ...
, or
gift tax In economics, a gift tax is the tax on money or property that one living person or corporate entity gives to another. A gift tax is a type of transfer tax that is imposed when someone gives something of value to someone else. The transfer must ...
revenue, particularly from business entities created primarily for
estate planning Estate planning is the process of anticipating and arranging for the management and disposal of a person's Estate (law), estate during the person's life in preparation for future incapacity or death. The planning includes the bequest of assets to ...
purposes. A number of
U.S. Tax Court The United States Tax Court (in case citations, T.C.) is a Federal judiciary of the United States, federal trial court court of record, of record established by US Congress, Congress under Article One of the United States Constitution, Article ...
cases involving
Family Limited Partnership Within partnership arrangements, Family Limited Partnerships (commonly called FLPs) are frequently used to move wealth from one generation to another. Partners are either General Partners (GP) or Limited Partners (LP). One or more General Partner ...
s (FLPs) illustrate the IRS's use of veil-piercing arguments. Since owners of U.S. business entities created for asset protection and estate purposes often fail to maintain proper corporate compliance, the IRS has achieved multiple high-profile court victories.


Reverse piercing

Reverse veil piercing is when the debt of a shareholder is imputed onto the corporation. Throughout the United States, the general rule is that reverse veil piercing is not allowed. However the California Court of Appeals has allowed reverse veil piercing against a
limited liability company A limited liability company (LLC) is the United States-specific form of a private limited company. It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of ...
(LLC) based largely on the difference in remedies available to creditors when it comes to attaching assets of a debtors' LLC as compared to attaching assets of a corporation.


See also

*
US corporate law United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governa ...
*
UK company law British company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directive (European Union), Directives and court cases, the company is th ...


Notes


References

;Books * ;Articles * * * * * * * {{DEFAULTSORT:Piercing The Corporate Veil Corporate law United Kingdom company law