There are no rules, other than the principles of fairness and justice, to dictate when the court should lift the veil of corporation, rendering therefore the parent company liable for the debts of the subsidiaries."
In this period of recession which is experiences in all parts of the world, many are inclined in going into business.
These people are called "owners", composed of the incorporators, directors, and the stockholders. Another point to consider is that a corporation, once approved, has a legal personality separate and distinct from its owners. Having a legal personality separate and distinct from its owners gives the corporation a limited liability to shareholders. Limited liability is a legal doctrine which means that if a "plaintiff wins a court judgment against the corporation, he (the plaintiff) cannot satisfy the judgment out of the personal assets of the owners, rather, the plaintiff must collect from the assets of the corporation".2 Limited liability is likened to a "veil" that offers the owners of the business protection for their personal assets, like for instance, if one of the co-owners or employees commits an unlawful action that injures someone, or if someone sues the corporation for non-payment of debt.3
But is the limited liability doctrine absolute The answer is it is not.4 The corporate law protection of limited liability can be lost through 1) piercing of the corporate veil, 2) defective incorporation, 3) improper signing of documents.5 This essay aims to discuss piercing the corporate veil by first explaining the limited liability rule followed by ...