Also known as: piercing the veil · pierce the veil · corporate veil piercing · piercing corporate veil · corporate veil · alter ego
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 or officers for corporate obligations. The doctrine requires a showing of unity of interest and ownership between the corporation and its controllers such that separate personalities no longer exist, together with circumstances in which adherence to the corporate fiction would sanction fraud or promote injustice. Courts evaluate the claim under a totality of the circumstances test that weighs factors including undercapitalization, failure to observe corporate formalities, commingling of funds, and use of the entity as a mere facade.
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Vincent Valdez formed Voss Shipping with minimal capital and used a single bank account for both corporate operations and his personal expenses. When a supplier obtained a judgment against Voss Shipping that the company could not pay, the supplier sought to reach Valdez personally. The court found unity of interest through the commingling and undercapitalization and concluded that respecting the corporate form would promote injustice.
Vivian Vaughn controlled Venture Holdings as its sole shareholder and officer. She paid no dividends, kept no corporate records, and siphoned funds to cover personal obligations while the corporation became insolvent. A creditor sued to pierce the veil after the corporation defaulted. The court applied the totality test and held that the entity was merely a facade, allowing recovery from Vaughn personally.
Viktor Voronin created Vega Motors as an undercapitalized shell and ignored all corporate formalities to shield himself from personal liability on equipment leases. After the company defaulted, the lessor asked the court to disregard the entity. The court applied the two-prong test, found the corporation was Voronin's mere instrumentality, and permitted recovery from his personal assets to prevent injustice.
Vanessa Vega incorporated each of her taxis as a separate corporation holding only the minimum required insurance. A pedestrian injured by one cab sued Vega personally, arguing the structure was designed to limit recovery. The court held that undercapitalization alone did not justify piercing absent proof that the corporations were used to perpetrate fraud or operated as alter egos for personal benefit.
Violet Vang owned several corporations each holding title to two cabs and minimal insurance. After a pedestrian was injured by one cab, she sued all the corporations and Vang personally, alleging they operated as a single unit for financing and repairs. The court examined whether the structure constituted an unlawful attempt to defraud injured members of the public by limiting assets available for recovery.
Valentina Vasquez formed Vista Manufacturing with insufficient capital and treated its assets as her own. A judgment creditor unable to collect from the insolvent corporation sought to hold Vasquez personally liable. The court assessed whether the corporate form had been abused to the point that separate existence should be disregarded to reach her personal assets.
A plaintiff must show unity of interest and ownership so that the separate personalities of the corporation and the individual no longer exist. The plaintiff must also show that adherence to the fiction of separate corporate existence would sanction fraud or promote injustice.
Supporting sources
No. Undercapitalization alone is insufficient absent a showing that the corporation was used to defraud creditors or operated as the alter ego of its shareholders for their personal benefit.
…Circuit to impute MBUSA’s California contacts to Daimler on an agency theory, at no point have they maintained that MBUSA is an alter ego of Daimler. Daimler, on the other hand, failed to object below to plaintiffs’ assertion that the California courts could exercise all-purpose jurisdiction over MBUSA.[^maj-12] But see…
…without its limits. Broadly speaking, the courts will disregard the corporate form, or, to use accepted terminology, “
Supporting sources
Courts weigh inadequate capitalization, failure to observe corporate formalities, nonpayment of dividends, insolvency, siphoning of funds by the dominant shareholder, nonfunctioning officers or directors, absence of corporate records, and whether the corporation was merely a facade for the dominant stockholder.
Supporting sources
No. State law provides that the failure of a limited liability company to observe formalities relating to the exercise of its powers or management of its activities is not a ground for imposing liability on a member for a debt of the company.
Supporting sources