Business Law: Corporate Veil Piercing and Legal Implications

This report delves into the legal concept of piercing the corporate veil in business law. It explores the circumstances under which a court may disregard the limited liability of a corporation, holding shareholders responsible for the company's debts and obligations. The report examines the doctrine's application, discussing relevant case laws such as Prest v Petrodel Resources Ltd and AB v Smallbone, to illustrate how courts determine when to pierce the corporate veil. The report also highlights the importance of shareholder responsibilities and the implications of fraudulent activities or non-compliance with corporate bylaws. The report emphasizes the significance of corporate governance and the legal principles that govern the relationship between a company and its shareholders. The report also discusses the factors that lead to the piercing of the corporate veil, and the implications for shareholders.

Law of Business Organisation

Piercing of Corporate Veil
In normal circumstances, if an organisation is sued, then its shareholders cannot be brought
into the lawsuit, due to the principle of the corporate veil. According to Lam (2015), this
doctrine is used to define the difference between a company and its shareholders. The
shareholder enjoys limited liability in a corporation. Butusina (2013) provided that the term
‘piercing of corporate veil’ is used by the court to ignore the limited liability clause and
holding the shareholders liable for debt and obligation of a company. The shareholders have a
general fiduciary duty of faithfulness and carefulness towards the company to perform their
corporate duties. The corporate veil is pierced by the court when shareholders or board are
sued for negligence or for other liabilities, due to non-performance of their duties.
As per Macey and Mitts (2014), the court can pierce the organisation’s corporate veil in
various circumstances such as commitment of fraud, injustice, misappropriation of public
money, failure of complying with corporate bylaws and failure to maintain proper records. In
Prest v Petrodel Resources Ltd [2013] 2 AC 415 case, the court provided the requirement of
the doctrine of piercing of corporate veil to hold shareholders responsible for their conducts
(Lightman and Hargreaves 2013). In another case of AB v Smallbone (No 2) [2001] 1 WLR
1177, the court decided that reasons for piercing of corporate veil include fraud and scam by
the shareholder, but which actions which considered as fraudn and scam was bsed on
situation of different cases (Lee 2015).

References
Butusina, L., 2013. Piercing the corporate veil. Revista Romana de Drept al Afacerilor, (8),
p.83.
Lam, C.L., 2015. Piercing the Corporate Veil.
LEE, P.W., 2015. The enigma of veil-piercing. International Company and Commercial Law
Review, 26(1), p.28.
Lightman, D. and Hargreaves, E., 2013. Petrodel Resources Ltd v Prest: where are we
now?. Trusts & Trustees, 19(9), pp.877-888.
Macey, J. and Mitts, J., 2014. Finding Order in the Morass: The Three Real Justifications for
Piercing the Corporate Veil. Cornell L. Rev., 100, p.99.