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Corporations • Formation Requirements
CORP#015
Legal Definition
Piercing the corporate veil is a method of directly going after the shareholders of a corporation to make them personally liable. Generally, a shareholder is not liable for the debts of the corporation.
Plain English Explanation
As you've learned in other cards, shareholders of a corporation are generally not liable for the debts or liabilities of the corporation. This is one of the most attractive aspects of a corporation, and it exists for very important, logical, genuine reasons. However, like many things in life, the liability protections can be abused by those who act in bad faith. In other words, some people start corporations purely for the benefit of attempting to shield their personal life from liabilities. These actors use the corporation as a veil. Courts don't like this.
In such circumstances, where shareholders are found to be improperly using a corporation as a sneaky veil around their personal dealings, a court will enable plaintiffs to pierce the corporate veil, breaking through the shield of the corporation, and allowing the plaintiff to reach into the privately held assets of its shareholders.
In such circumstances, where shareholders are found to be improperly using a corporation as a sneaky veil around their personal dealings, a court will enable plaintiffs to pierce the corporate veil, breaking through the shield of the corporation, and allowing the plaintiff to reach into the privately held assets of its shareholders.
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