What Is the Veil Law?

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Summary of Veil Law

  • The veil law states that a company’s shareholders are not liable for the company’s debts or liabilities.
  • The veil protects shareholders from being held liable for the company’s actions by symbolically distinguishing the company as a separate legal entity from its shareholders.

Piercing the Veil

  • Piercing this veil refers to courts disregarding limited liability and holding shareholders or directors personally liable for the corporation’s actions or debts.
  • This piercing most often happens with close corporations.

Purpose of Veil Piercing

  • The purpose of the veil is to distinguish a company from its shareholders, protecting shareholders from liability for the company’s actions or debts.
  • Veil piercing may occur when a corporation is unable to pay, allowing creditors to hold shareholders or directors personally liable.
  • Proving misconduct is required for veil piercing.

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