This lesson introduces the corporate veil, the principle of separate legal personality, and the statutory basis of shareholder limited liability. These ideas explain why a company’s debts are usually its own—and why exceptional cases may produce a different result.
A corporation is generally treated as a legal person distinct from its shareholders. It can own property, enter contracts, incur debts, and bring or defend legal proceedings in its own name. Ordinarily, the company alone is responsible for its obligations, and it alone benefits from the credit owed to it.
All flashcards
What is the corporate veil?
A metaphor for the legal boundary between a corporation and the people behind it.
What does separate legal personality mean?
A corporation is a legal person distinct from its shareholders, with rights and obligations in its own name.
How does limited liability differ from separate personality?
Separate personality makes the company a distinct legal person; limited liability restricts shareholders’ personal exposure and is mainly grounded in statute.
What is the evasion principle in UK veil-piercing law?
A person interposes a company to evade an obligation or restriction that already applies to them.
What did the AktG 1965 codify?
Statutory rules for corporate groups, particularly in §§ 291–319.
Quiz questions
Under the concealment principle in UK law, what is the significance of a company concealing the identity of a person involved?Answer: The court may discover the facts, but concealment alone does not justify piercing the veil.
How may a parent company become liable in tort for harm connected with a subsidiary’s operations without veil piercing?Answer: It may owe a direct duty of care based on its own conduct and relationship to the risk.
Which three considerations are commonly included in U.S. veil-piercing formulations?Answer: Unity of interest, wrongful conduct, and proximate cause of harm.
What does reverse veil piercing seek to do?Answer: Make a corporation answer for a shareholder’s debt.
Under the German destructive-interference principle, what conduct may expose a shareholder to tort liability?Answer: Removing uncompensated funds needed for the company’s foreseeable obligations.