Corporate Liability and Veil Piercing

This assignment delves into the crucial concepts of corporate liability and veil piercing within the realm of business organization law. It examines the 'directing mind' theory, which attributes responsibility for an organization's actions to key individuals like directors and executives. Furthermore, it explores the circumstances under which courts may 'pierce the corporate veil,' holding shareholders personally liable for corporate debts or wrongdoings.

Law of Business
Organization

Table of Contents
Directing Mind and Will..................................................................................................................3
Piercing the Corporate Veil.............................................................................................................4
References........................................................................................................................................4

Directing Mind and Will
In context of the organization, any person who manages, controls, or make decisions in the
organization is considered to be the ‘mind and will of the organization. It is essential that the
principle must be fulfilled in order to prove the mental factorfor any kind of civil or criminal
offences being planned againstanorganization (LawTeacher, 2017). Hence, the identification
doctrine is recognized as the directing mind theory.
From historical point of view, it has been proved to be a hindrance as it prevents the companies
from being apprehended as responsible for the actions performed by the persons within the
organization. Thus, in order to establish organization's offence, the individual who is the brain
behind the organization must be proved to be the directing mind and will of the organization.
(Grimes, et al., 2017). The individuals who are positioned at the topmost level in the
organization must be held responsible and accountable for any flaw or faulty conduct of the
organization. Thus the ‘directing mind and will’ of any organization leads to the board of
directors, CEO, managing director and all other executives who are responsible and partake in
the decision making of the organization. However, there may be other subordinates who may
indirectly act as mind and will of the organization but may not be on the top management sector
in the organization. As of today, in huge companies, because of existence of disparity between
the directing mind and the functional authorities, it has become difficult to impose criminal
liability on all of them (Taylor Wessing LLP, 2016).

Piercing the Corporate Veil
The term "corporate veil" is used to describe the removal or separation of any corporate
executive or owner from the third party shareholders. Basically, a corporation is a separate
entity - limited liability company (LLC) that is formed to protect and shield the owners of the
organization from private accountability for the amount overdue or negligent acts in the
company. "Piercing the corporate veil" is a phrase that describes the actions taken by a court to
establish the liability of the shareholders and owners of the LLC for the amount overdue and
liability of a corporation. Corporations are generally considered to be as separate entities,
different bodies and under normal circumstances, if an organization is prosecuted, the owners or
executives are not brought in to the proceedings. (Murray, 2016). However, in some situations,
the officers and shareholders of the corporation can be sued for the acts of negligence and also
for debts, and this action of holding the shareholders to be responsible and suing him is known as
"piercing the corporate veil". In a similar manner, the limited liability company owners can be
prosecuted for the flaws, frauds, negligence and debts in the business. There are two situations,
where the court can pierce the corporate veil and the shareholders and the members of the LLC
to be sued. It includes the fraudulent acts or deals by the corporation and willful act of the
shareholders and officers for the purpose of corporate gain to be placed over the benefits of the
public (Jimerson & Snell, 2016).
References
Grimes, J., Niblock, R. & Madden, L., 2017. Corporate criminal liability in the UK: the
introduction of deferred prosecution agreements, proposals for further change, and the
consequences for officers and senior managers. [Online]
Available at: https://uk.practicallaw.thomsonreuters.com/4-547-9466?

transitionType=Default&contextData=(sc.Default)&firstPage=true
[Accessed 19 September 2017].
Jimerson, C. B. & Snell, B. N., 2016. The Five Most Common Ways To Pierce The Corporate
Veil And Impose Personal Liability For Corporate Debts. [Online]
Available at: http://www.jimersoncobb.com/blog/2016/03/the-five-most-common-ways-to-
pierce-the-corporate-veil-and-impose-personal-liability-for-corporate-debts/
[Accessed 19 September 2017].
LawTeacher, 2017. Corporate Liability In Criminal Law. [Online]
Available at: https://www.lawteacher.net/free-law-essays/business-law/corporate-liability-in-
criminal-law-business-law-essay.php
[Accessed 19 September 2017].
Murray, J., 2016. Piercing the Corporate Veil - What Business Owners Need to Know. [Online]
Available at: https://www.thebalance.com/piercing-the-corporate-veil-definition-398410
[Accessed 19 September 2017].
Taylor Wessing LLP, 2016. Corporate Liability: What exactly does it mean to prove a company
‘guilty’?. [Online]
Available at: https://united-kingdom.taylorwessing.com/en/corporate-liability-what-exactly-
does-it-mean-to-prove-a-company-guilty
[Accessed 19 September 2017].