Lifting the Corporate Veil Definition:
Disregarding the general rule a corporation is a legal entity distinct from its shareholders by regarding the company as a mere agent or puppet of a controlling shareholder or parent corporation.
Piercing the Corporate Veil
In some jurisdictions, the courts prefer the term piercing the corporate veil.
In Kosmopolous, Madam Justice Bertha Wilson of Canada's Supreme Court wrote, at ¶12:
"As a general rule a corporation is a legal entity distinct from its shareholders. The law on when a Court may disregard this principle by lifting the corporate veil and regarding the company as a mere agent or puppet of its controlling shareholder or parent corporation follows no consistent principle. The best that can be said is that the separate entities principle is not enforced when it would yield a result too flagrantly opposed to justice (or) convenience .... I have no doubt that theoretically the veil could be lifted in this case to do justice...."
Canada's national law digest, the C.E.D., proposes the law as follows:
"To pierce or lift the corporate veil is to disregard the separate personality of a company and to deal instead with the economic interests lying behind the legal facade of the company. In certain cases legislation has provided express authority for piercing the corporate veil and affixing liability on shareholders, directors or other persons in effective control of the corporation, or some relevant aspect of its activities.
"It has been suggested that the courts may pierce the corporate veil in a wide range of situations, primarily on the basis of whether the corporation and its shareholders are factually distinct. However, this extreme position has gathered little support from the time when it was first put forward. Thus the courts are generally unwilling to pierce the corporate veil, and will do so only where required by statute or where extraordinary circumstances exist.
"Cases falling within the latter category fall within a narrow compass. Taking advantage of the limited liability of a corporation per se is not improper. A person who chooses to deal with a corporation is limited in recourse to whatever assets the corporation itself possesses. There is a presumption that a transaction is what it purports to be, thus as a general rule a contract made by a corporation will not be imputed back to the owner of the corporation on an agency basis unless it can be shown that both parties so intended at the time of the formation of the contract. The overwhelming current in the case law is that the separate status of a corporation must be respected."
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