Finding Order in the Morass: The Three Real Justifications for Piercing the Corporate Veil

80 Pages Posted: 19 Feb 2014 Last revised: 25 Sep 2014

Date Written: February 18, 2014

Abstract

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.

Suggested Citation

Macey, Jonathan R. and Mitts, Joshua, Finding Order in the Morass: The Three Real Justifications for Piercing the Corporate Veil (February 18, 2014). Cornell Law Review, Forthcoming; Yale Law & Economics Research Paper No. 488. Available at SSRN: https://ssrn.com/abstract=2398033 or http://dx.doi.org/10.2139/ssrn.2398033

Jonathan R. Macey

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
+203-432-7913 (Phone)
+203-4871 (Fax)

Joshua Mitts (Contact Author)

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States

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