• I have heard this expression to mean 2 different things. First, it was used similar to the glass ceiling that women and minorities found when they could not advance into the boardrooms and to CEO of most major corps. Second is to be on the inside such as insider trading, strategy sessions etc. The connotation is that like politicians, corporations say one thing and do another. No, No, No. We never would have stored the anthrax next to a school. We selected an (um ah er) contracter (yeah) to safely dispose the toxic waste according to the law and our own high standards. --- Yeah right.
  • Actually, this refers to prosecuting individuals within a corporation. Forming a corporation is often a way to protect the founders from personal liability, be it from debts or from lawsuits. However, if the law (SEC, FBI, whatever) is able to prosecute an individual within the corporation for actions they performed on behalf of the corporation, this is called "piercing the corporate veil."
  • The phrase "to pierce the corporate veil" refers to the ability of a plaintiff to sue the owners of a corporation (i.e. the shareholders). The phrase does not properly refer to criminal prosecutions. The phrase also does not properly refer to the ability to sue the managers (as opposed to owners) of a corporation -- although there are other, more limited legal doctrines for this. One of the key features of a corporation is limited liability for its owners. Corporate shareholders are only at risk to lose their initial investment in the corporation & cannot typically be sued for the civil wrongdoings of the corporation. So, if a corporation breaches a contract, or its employee commits a negligent act, etc. then the wronged plaintiff can only sue the corporation itself for a remedy. [This enables a corporation to raise money... there wouldn't be much of a stock market if a shareholder might get sued for the corporation's civil wrongdoings.] The concept of "piercing the corporate veil" came about as a way for the courts to deal with thinly capitalized corporations -- that is, corporations which are funded with only a few assets. Thinly capitalized corporations sometimes make it impossible for plaintiffs to recover, since the corporation is the only entity which can be held liable. Therefore, in egregious cases, a court will allow a plaintiff to sue the shareholders (owners) of a corporation in order to satisfy the corporate liability. This idea goes against the theory of corporate limited liability, but it is grounded in the idea that the owners committed a wrong -- not the actual injury to the plaintiff, but rather the under-funding of a corporation which then engaged in risky activities. Courts will more often pierce the corporate veil in tort (i.e. personal injury) cases than in contract cases. In contract cases, the harmed party to the contract has a greater opportunity to discover that the corporation is thinly capitalized. The phrase does not properly refer to criminal prosecutions. There are crimes (e.g. in the federal securities law) that can be committed by the managers or owners of a corporation & all that the prosecutor need establish is the legal groundwork for the crime. These corporate actors receive no limited liability protection from the corporation when prosecuted. The phrase also does not properly refer to the ability of a plaintiff to sue the managers of a corporation. This may seem odd, since the managers are the ones actually overseeing the harmful corporate behavior & therefore seem more culpable than the absentee shareholder-owners. But remember: the legal theory behind piercing the corporate veil more to do with the funding of the corporation than with the actual injury to the plaintiff. There are some other judicial doctrines which hold managers liable for their acts, but they are even more limited in application than piercing the corporate veil.

Copyright 2020, Wired Ivy, LLC

Answerbag | Terms of Service | Privacy Policy