Piercing the Corporate Veil: Shareholder Liability for Corporate Torts
Maastricht Journal of European and Comparitive Law, vol. 8/2, 2001, pp. 167-188.
22 Pages Posted: 10 Jun 2001 Last revised: 22 Jan 2016
Date Written: January 1, 2001
This article discusses the concept of veil piercing, i.e. shareholder and parent company liability, and explores its scope, rationale, justification and limits. It focuses on a corporation's extra-contractual or tort liability, and refers in particular to environmental liability. We first discuss what veil piercing is not. Several legal doctrines resemble veil piercing in that they may also lead to shareholder liability. However, they are distinct from veil piercing, and should be distinguished from it. We then focus on what veil piercing is, and discuss the grounds on which courts pierce, and should or should not pierce, the corporate veil and impose liability for corporate debts on shareholders. The third part analyzes the rationale and justification of limited liability. A proper understanding of limited liability and its functions is essential to understanding the implications of veil piercing. In the next part, we turn to the question whether a rule of unlimited shareholder liability, as floated by the European Commission in connection with proposals for an environmental liability directive, should be part of civil liability law. Unlimited shareholder liability is closely related to veil piercing and can be viewed as institutionalized or generalized veil piercing. The final part sets forth some conclusions. We conclude that veil piercing is an exception to limited liability that covers mostly cases that are or could be resolved under the principles of director and officer liability and fraudulent conveyance. Indeed, veil piercing beyond these two situations does more harm than good.
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