Also known as: pierce the corporate veil · pierces the corporate veil · pierced the corporate veil · corporate veil piercing · veil piercing · lifting the corporate veil · disregarding the corporate entity
Written by attorneys · grounded in primary & secondary sources — see below
A judicial doctrine by which a court disregards the separate legal personality of a corporation to impose personal liability on its shareholders for corporate obligations. The doctrine requires proof that the corporation functioned as the alter ego of its owners because of commingling of funds, failure to observe formalities, or undercapitalization, and that adherence to the corporate form would sanction fraud or promote injustice.
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Paul Peterson formed Paragon Construction to bid on public projects. He deposited all project payments into his personal account and paid corporate bills from the same account. When a supplier obtained a judgment against Paragon, the court found unity of interest because Peterson treated corporate assets as his own and left the company with no reserves. The court pierced the veil and held Peterson personally liable.
Pamela Phillips owned Pulse Media and transferred every advertising fee directly to her personal brokerage account. She never held board meetings or issued stock certificates. After Pulse defaulted on a vendor contract, the court examined inadequate capitalization, siphoning of funds, and absence of records. It pierced the veil and allowed the vendor to reach Phillips's personal assets.
Peter Park created Phoenix Technologies with minimal capital and no liability insurance. He used the company solely to license software he developed personally. When a customer sued for breach, the court found Phoenix was an alter ego because Park ignored formalities and the entity existed only to shield him from personal responsibility. The court pierced the veil to reach Park's assets.
Parker Phillips incorporated each of his delivery trucks as a separate entity capitalized only at scrap value. A pedestrian injured by one truck obtained a judgment against that entity alone. Because Phillips maintained separate records and did not divert assets to defraud creditors, the court refused to pierce the veil despite extreme undercapitalization.
Penelope Price formed Prime Logistics to hold title to each of her delivery vans. She controlled all maintenance decisions from a single office and moved revenues among the entities at will. After one van caused an accident, the injured party showed that Prime existed only to carry on Price's personal business. Because Phillips maintained separate records and did not divert assets to defraud creditors, the court refused to pierce the veil despite extreme undercapitalization.
Priya Prasad's parent company directed its subsidiary's environmental compliance but kept separate books and capitalization. When regulators sought to hold the parent liable for the subsidiary's cleanup costs, the court found no abuse of the corporate form. Because the parent did not treat the subsidiary as a mere instrumentality for fraud, the court refused to pierce the veil.
A plaintiff must show both unity of interest and ownership so that the corporation and shareholder have no separate personalities, and that respecting the corporate form would sanction fraud or promote injustice. Courts examine factors such as commingling of funds, failure to maintain formalities, and undercapitalization when assessing the first element.
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…defendant actually serviced, inspected, repaired and dispatched them. These facts were deemed to provide sufficient cause for piercing the corporate veil of the operating company — the nominal owner of the cab which injured the plaintiff — and holding the defendant liable. The operating companies were simply instrumentalities for carrying on…
…at least diminished where the parties are subsidiaries of American corporations." Id., at 933. In effect, the Court of Appeals
…and the extent and manner of its involvement with the facility, amount to the abuse of the corporate
No. Undercapitalization by itself does not justify piercing unless the corporation was used to defraud creditors or operated as the alter ego of its shareholders for their personal benefit. Courts require an additional showing of fraud or injustice.
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Courts consider inadequate capitalization, failure to observe corporate formalities, nonpayment of dividends, insolvency, siphoning of funds by the dominant shareholder, nonfunctioning officers, absence of records, and whether the corporation was merely a facade for the dominant stockholder.
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The doctrine applies in both contract and tort settings whenever the corporate form is abused to evade obligations or perpetrate injustice. Courts have pierced the veil to reach shareholders in negligence actions involving undercapitalized entities that ignored known hazards.
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