Veil Peeking: The Corporation as a Nexus for Regulation

Abstract

Legal and economic scholarship views the provision of asset partitioning (the separation between the assets of the corporation and its shareholders) as the essential economic role of corporate personality. This Article contends that this view is incomplete. First, it identifies the provision of regulatory partitioning (the separation between the regulatory spheres of the corporation and its shareholders) as another fundamental function of the corporate form. Second, it shows that regulatory partitioning is not absolute. In various areas of law and for different purposes, the law “peeks”—or looks behind the corporate veil—to ascribe legal rights or detriments of shareholders to the corporation.
Although veil piercing (asset departitioning) and what I term veil peeking (regulatory departitioning) serve different functions and entail distinct tradeoffs, they have been almost universally conflated by scholars and courts. This Article examines the economic benefits and costs of regulatory partitioning, provides a taxonomy of its different exceptions, and argues that veil piercing and veil peeking claims should be subject to different criteria. This analysis illuminates and offers normative implications for controversies in a variety of legal fields, including constitutional, international, tax, corporate, contract, and antitrust law. The reconceptualization of the corporation as a “nexus for regulation” as well as a “nexus for contracts” offers an additional, and heretofore overlooked, rationale for the organization of economic activity under the corporate form in the United States and around the world.