Finding Order in the Morass: The Three Real Justifications for Piercing the Corporate Veil
Jonathan R. Macey
Yale Law School
Columbia Law School; Columbia University - Columbia Business School
February 18, 2014
Cornell Law Review, Forthcoming
Yale Law & Economics Research Paper No. 488
Few doctrines are more shrouded in mystery and yet more litigated than piercing the corporate veil. We develop a new theoretical taxonomy which postulates that veil-piercing decisions fall into three categories: (1) achieving the purpose of a statutory or regulatory scheme, (2) preventing shareholders from obtaining credit by misrepresentation, and (3) promoting the bankruptcy values of achieving the orderly, efficient resolution of a bankrupt’s estate. We analyze the facts of several veil-piercing cases to show how the outcomes are explained by the three theories we put forth and show that undercapitalization is rarely, if ever, an independent grounds for piercing the corporate veil. In addition, we employ modern quantitative machine learning methods never before utilized in legal scholarship to analyze the full text of 9,380 judicial opinions. We demonstrate that our theories systematically predict veil-piercing outcomes, the widely-invoked rationale of “undercapitalization” of the business poorly explains these cases, and our theories most closely reflect the textual structure of the opinions.
Number of Pages in PDF File: 80
Date posted: February 19, 2014 ; Last revised: September 25, 2014
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