Application of Corporate Veil in International Business Law Report

This report delves into the application of the corporate veil within the context of international business law. It begins by explaining the concept of the corporate veil, which distinguishes a company as a separate legal entity from its owners, and highlights the complexities and controversies surrounding its application. The report then examines the factors considered by courts when determining whether to lift the corporate veil, referencing the landmark case of Salomon v. Salomon. It further explores different jurisdictional approaches to piercing the corporate veil, comparing common law and civil law systems, and analyzing the advantages and disadvantages of each. The report also provides an overview of the regulatory environment and applicable case law in jurisdictions such as Germany, the United Kingdom, and the United States. Overall, the report aims to provide a comprehensive understanding of the corporate veil and its implications in the international business landscape.

Running head: INTERNATIONAL BUSINESS LAW
International Business Law
Name of the Student
Name of the University
Author Note

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Introduction
The purpose of writing this report is to explain the application of corporate veil in the
corporate legal environment. It is one of the controversial areas. The concept of corporate veil is
applicable to the public companies which say that the legal person is different from its company.
There are many consideration which are regarded while determining the factors whether the
Court can lift up the corporate veil. Solomon vs. Solomon is a famous case for determining the
case for lifting up the corporate veil. Nowadays the above principle is used when there is unjust
to the third parties. 1Most of the limited companies apply this rule to separate personality. If the
corporate veil is lifted then the limited liability is lost and the Court may impose personal fines
and penalty on the directors and the management of the companies.
Different approaches to piercing the corporate veil in each of the relevant jurisdictions
Piercing the corporate veil or lifting the corporate veil is a concept where the legal
decision is taken on both the rights as well as the duties of the companies as well as
its shareholders. A company or a Corporation is treated as a separate legal person, and they are
responsible for the debts that are incurred and is the sole beneficiary of the credit it is owed. As
per the common law, the companies uphold this principle of separate legal entity except in the
exceptional situations may "pierce" or "lift" the corporate veil.
1 (Ahern, Mike. The Use of Personal Knowledge and Belief by Jurors and Juries. Diss. University of
Canberra,2015).

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Taking a example where the businessman, who was the director has left his position as a
director and signed an agreement where the company will has just left for a period of time2. He
set up a company which was competing with the former company,3, technically it would be the
company and not the person competing. The Court said that the new company is a sham which
would still allow the old company to sue the man for breach of the contract.
Justification for the different jurisdictional approaches
Common Law System
A country which follows the common law system is typically known to the former British
colonies or protectorates, including the United States.
Features that common law system include:
 There is no such written constitution or particular codified laws;
 The decision made by the Judicial are binding – the decisions are of the highest court
which can generally be overturned by the same court or through the legislation4;
2 Allen, Ronald Jay, et al. Criminal procedure: investigation and right to counsel. Wolters
Kluwer Law & Business, 2016.
3 Bedi, Monu. "Unraveling Unlawful Command Influence." Wash. UL Rev. 93 (2015): 1401.
4 Browning, John G. "Voir Dire Becomes Voir Google: Ethical Concerns of 21st Century Jury
Selection." The Brief 45.2 (2016): 40.

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 There is extensive freedom of the contract – There are few provisions that are implied
into the contract by law
 It is seen that everything that is included is not expressly prohibited by law.
A common law system is less of the descriptive or less prescriptive than that of the civil
law system5.Thus the Government may enshrine the protection to the citizens for particular
legislation related to the infrastructure program being contemplated. They may wish to prohibit
the service provider from cutting off the water or electricity supply of bad payers or may require
that documents related to the transaction be disclosed under a freedom of information act. There
may also be legal requirements to imply into a contract in equal bargaining provisions where one
party is in a much stronger bargaining position than the other6.
There are very provisions that can be implied into a contract under the common law
system – it is therefore important to set out all the terms governing the relationship between the
parties to a contract in the contract itself. This results in a contract which is longer in a civil law
country.
5 Cockburn, James Swanston, and Thomas A. Green, eds. Twelve good men and true: the
criminal trial jury in England, 1200-1800. Princeton University Press, 2014.
6 Coen, Mark, and Jonathan Doak. "Embedding explained jury verdicts in the English criminal
trial." Legal Studies (2017).

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Civil Law System
The Countries that follow the civil law system mainly belong from French, Dutch,
German, Spanish or Portuguese colonies or protectorates, including much of Central and South
America7. There are many people who follow the Central and Eastern European and East Asian
countries’ civil law structure.
The civil law system is a codified system of law. It takes its origins from Roman law.
Features of a civil law system include:
 There is a written constitution which is based on the specific codes (e.g., civil code,
codes covering corporate law, administrative law, tax law and constitutional law) the
enshrining basic rights and the duties; administrative law is something which is however
less codified and the administrative court judges which tend to behave more like the
common law judges8;
 Only the legislative enactments which are considered as binding to the all. There is a little
scope for the judge or the law in civil, criminal and commercial courts, although in
practice judges which tend to follow the previous judicial decisions; constitutional and
administrative courts that can nullify the laws and regulations and their decisions in such
cases are binding for all9.
7 Cover, Aliza Plener. "Hybrid Jury Strikes." Harv. CR-CLL Rev. 52 (2017): 357.
8 Garett, Brandon L., and Gregory Mitchell. "Forensics and Fallibility: Comparing the Views of
Lawyers and Jurors." W. Va. L. Rev. 119 (2016): 621.

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 The Courts have specific to that of the underlying codes – there are usually separate
constitutional court, administrative court and civil court systems that opine on
consistency of legislation and administrative acts with and interpret that specific code10;
 Less freedom of the contract – There are many provisions which are implied into a
contract by the law and parties which cannot be contract out of the certain provisions.
A civil law system is generally more prescriptive than a common law system. However, a
government will still need to consider whether specific legislation is required to either limit the
scope of a certain restriction to allow a successful infrastructure project, or may require specific
legislation for a sector11. There are a number of provisions implied into a contract under the civil
law system.This will often result in a contract being shorter than one in a common law country12.
9 Grunewald, Ralph, and Marvin Zalman. "Reinventing the Trial: The Innocence Revolution and
Proposals to Modify the American Criminal Trial." (2016).
10 Hoffmeister, Thaddeus. "Preventing Juror Misconduct in a Digital World." Chi.-Kent L.
Rev. 90 (2015): 981.
11 Hans, Valerie P., et al. "The Death Penalty: Should the Judge or the Jury Decide Who
Dies?." Journal of Empirical Legal Studies 12.1 (2015): 70-99.
12 Horan, Jacqueline, and Mark Israel. "Beyond the legal barriers: Institutional gate keeping and
real jury research." Australian & New Zealand Journal of Criminology 49.3 (2016): 422-436.

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Advantages and disadvantages of the different approaches in the case study analysis
Germany
German corporate law developed a number of theories in the early 1920s for lifting the
corporate veil on the basis of "domination" by a parent company over a subsidiary. Today,
shareholders can be held liable in the case of an interference destroying the corporation13. The
corporation is entitled to a minimum of equitable funds. If these are taken away by the
shareholder the corporation may claim compensation, even in an insolvency proceeding.
United Kingdom
The corporate veil in UK company law is pierced very rarely. After a series of attempts
by the Court of Appeal during the late 1960s and early 1970s to establish a theory of economic
reality, and a doctrine of control for lifting the veil, the House of Lords reasserted an orthodox
approach14. According to a 1990 case at the Court of Appeal, Adams v Cape Industries plc, the
only true "veil piercing" may take place when a company is set up for fraudulent purposes, or
where it is established to avoid an existing obligation. The veil is also often ignored in the
process of interpreting a statute, and as a matter of tort law it is open as a matter of authority that
a direct duty of care may be owed by the managers of a parent company to accident victims of a
13 Horan, Jacqueline, and Shelley Maine. "Criminal Jury Trials in 2030: A Law
Odyssey." Journal of Law and SoPowers, Christopher A. "Textual Misconduct: What Juror
Texting Means for Courts." Syracuse L. Rev. 67 (2017): 303. ciety 41.4 (2014): 551-575.
14 Kreag, Jason. "The Jury's Brady Right." (2017).

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subsidiary15. There are also significant statements still among the judiciary in support of a
broader veil lifting approach in the interests of "justice”. The issue is discussed at length in a
2013 UK Supreme Court case, Prest v Petrodel Resources Ltd.
It is an axiomatic principle that a company is an entity separate and distinct from its
members, who are liable only to the extent that they have contributed to the company's
capital: Salomon v Salomon [1897]16. The effect of this rule is that the individual subsidiaries
within a conglomerate will be treated as separate entities and the parent cannot be made liable for
the subsidiaries' debts on insolvency. Furthermore, it can create subsidiaries with inadequate
capitalization and secure loans to the subsidiaries with fixed charges over their assets, despite the
fact that this is "not necessarily the most honest way of trading”. The rule also applies in
Scotland17.
While the secondary literature refers to different means of "lifting" or "piercing" the veil
judicial dicta supporting the view that the rule in Salomon is subject to exceptions are thin on the
ground. The theory of the "single economic unit" - wherein the court examined the overall
business operation as an economic unit, rather than strict legal form - in DHN Food Distributors
15 Law, Tricia Harris. "Trial by jury: has the lamp lost its glow?." Diffusion-The UCLan Journal
of Undergraduate Research 3.2 (2015).
16 Levenson, Laurie L. "The Cure for the Cynical Prosecutors’ Syndrome: Rethinking a
Prosecutor’s Role in Post-Conviction Cases." Browser Download This Paper (2015).
17 Levine, Kate. "Who Should't Prosecute the Police." Iowa L. Rev.101 (2015): 1447.

8INTERNATIONAL BUSINESS LAW
v Tower Hamlets. However this has largely been repudiated and has been treated with caution in
subsequent judgments18.
United States
In the United States, corporate veil piercing is the most litigated issue in corporate law.
Although courts are reluctant to hold an active shareholder liable for actions that are legally the
responsibility of the corporation, even if the corporation has a single shareholder, they will often
do so if the corporation was markedly noncompliant with corporate formalities, to prevent fraud,
or to achieve equity in certain cases of undercapitalization
In most jurisdictions, the ruling is based on common law precedents. In the United States,
different theories, most important "alter ego" or "instrumentality rule", attempted to create a
piercing standard. Mostly, they rest upon three basic prongs19
 "Unity of interest and ownership": the separate personalities of the shareholder and
corporation cease to exist,
 "Wrongful conduct": wrongful action taken by the corporation, and
18 Ouziel, Lauren M. "Legitimacy and Federal Criminal Enforcement Power." Yale LJ 123
(2013): 2236.
19 Plener Cover, Aliza. "Hybrid Jury Strikes." Harvard Civil Rights-Civil Liberties Law
Review 52.2 (2017).

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 "Proximate cause": as a reasonably foreseeable result of the wrongful action, harm was
caused to the party that is seeking to pierce the corporate veil20.
However, the theories failed to articulate a real-world approach which courts could directly
apply to their cases. Thus, courts struggle with the proof of each prong and rather analyze all
given factors. This is known as "totality of circumstances"
There is also the matter of what jurisdiction the corporation is incorporated in if the
corporation is authorized to do business in more than one state21. All corporations have one
specific state (their "home" state) to which they are incorporated as a home company and if they
operate in other states, they would apply for authority to do business in those other states as
a foreign company. In determining whether or not the corporate veil may be pierced, the courts
are required to use the laws of the corporation's home state22. This issue can be significant; for
example, the rules for allowing a corporate veil to be pierced are much more liberal than. Thus,
the owner(s) of a corporation operating in California would be subject to different potential for
the corporation's veil to be pierced if the corporation was to be sued, depending on whether the
20 Reich, J. Brad. "Inexorable Intertwinement: The Internet and the American Jury
System." Idaho L. Rev. 51 (2015): 389-711.
21 Silberman, Linda J., Allan R. Stein, and Tobias Barrington Wolff. Civil Procedure: Theory
and Practice. Wolters Kluwer Law & Business, 2017.
22 Smith, Emma Jane. "Guilty of using Google: Reconciling the right to a fair trial with the right
to freedom of expression and addressing juror misconduct in the age of social media." (2014).

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corporation was a California domestic corporation or was a Nevada foreign corporation
operating in California.
Relevant regulatory environment and applicable case law in each jurisdiction
In Woolfson v Strathclyde BC, the House of Lords held that it was a decision to be confined
to its facts (the question in DHN had been whether the subsidiary of the plaintiff, the former
owning the premises on which the parent carried out its business, could receive compensation for
loss of business under this notwithstanding that under the rule in Salomon, it was the parent and
not the subsidiary that had lost the business)23. Likewise, in Bank of Tokyo v Karoon, Lord Goff,
who had concurred in the result in DHN, held that the legal conception of the corporate structure
was entirely distinct from the economic realities.
The "single economic unit" theory was likewise rejected by the CA in Adams v Cape
Industries, where it was held held that cases where the rule in Salomon had been circumvented
were merely instances where they didn't know what to do. The view expressed at first instance
by HHJ Southwell QC in Creasey v Breachwood that English law "definitely" recognised the
principle that the corporate veil could be lifted was described as a heresy by Hobhouse LJ in Ord
v Bellhaven, and these doubts were shared by Moritt V-C in the corporate veil cannot be lifted
merely because justice requires it24. Despite the rejection of the "justice of the case" test, it is
observed from judicial reasoning in veil piercing cases that the courts employ "equitable
23 Sonenshein, David, and Charles Fitzpatrick. "The problem of partisan experts and the potential
for reform through concurrent evidence." Rev. Litig. 32 (2013): 1.
24 Taylor, Nick, and Judge Roderick Denyer. "Judicial management of juror impropriety." The
Journal of Criminal Law 78.1 (2014): 43-64.

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discretion" guided by general principles such as male fides to test whether the corporate structure
has been used as a mere device.
Generally, the plaintiff has to prove that the incorporation was merely a formality and
that the corporation neglected corporate formalities and protocols, such as voting to approve the
companies in the context of a duly authorized corporate meeting25. This is quite often the case
when a corporation facing legal liability transfers its assets and business to another corporation
with the same management and shareholders. It also happens with single person corporations that
are managed in a haphazard manner. As such, the veil can be pierced in both civil cases and
where regulatory proceedings are taken against a shell corporation26.
25 White, Dillon Michael. Innocent Until Tweeted: How New Media Threaten an Old System, and
a Framework For Fixing American Courts. Diss. University of Minnesota, 2016.
26 Zalman, Marvin, and Ralph Grunewald. "Reinventing the Trial: The Innocence Revolution and
Proposals to Modify the American Criminal Trial." Tex. A&M L. Rev. 3 (2015): 189.

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References
Ahern, Mike. The Use of Personal Knowledge and Belief by Jurors and Juries. Diss. University
of Canberra, 2015.
Allen, Ronald Jay, et al. Criminal procedure: investigation and right to counsel. Wolters Kluwer
Law & Business, 2016.
Bedi, Monu. "Unraveling Unlawful Command Influence." Wash. UL Rev. 93 (2015): 1401.
Browning, John G. "Voir Dire Becomes Voir Google: Ethical Concerns of 21st Century Jury
Selection." The Brief 45.2 (2016): 40.
Cockburn, James Swanston, and Thomas A. Green, eds. Twelve good men and true: the criminal
trial jury in England, 1200-1800. Princeton University Press, 2014.
Coen, Mark, and Jonathan Doak. "Embedding explained jury verdicts in the English criminal
trial." Legal Studies (2017).
Cover, Aliza Plener. "Hybrid Jury Strikes." Harv. CR-CLL Rev. 52 (2017): 357.
Garett, Brandon L., and Gregory Mitchell. "Forensics and Fallibility: Comparing the Views of
Lawyers and Jurors." W. Va. L. Rev. 119 (2016): 621.
Grunewald, Ralph, and Marvin Zalman. "Reinventing the Trial: The Innocence Revolution and
Proposals to Modify the American Criminal Trial." (2016).
Hoffmeister, Thaddeus. "Preventing Juror Misconduct in a Digital World." Chi.-Kent L. Rev. 90
(2015): 981.

14INTERNATIONAL BUSINESS LAW
Hans, Valerie P., et al. "The Death Penalty: Should the Judge or the Jury Decide Who
Dies?." Journal of Empirical Legal Studies 12.1 (2015): 70-99.
Horan, Jacqueline, and Mark Israel. "Beyond the legal barriers: Institutional gate keeping and
real jury research." Australian & New Zealand Journal of Criminology 49.3 (2016): 422-436.
Horan, Jacqueline, and Shelley Maine. "Criminal Jury Trials in 2030: A Law Odyssey." Journal
of Law and SoPowers, Christopher A. "Textual Misconduct: What Juror Texting Means for
Courts." Syracuse L. Rev. 67 (2017): 303. ciety 41.4 (2014): 551-575.
Kreag, Jason. "The Jury's Brady Right." (2017).
Law, Tricia Harris. "Trial by jury: has the lamp lost its glow?." Diffusion-The UCLan Journal of
Undergraduate Research 3.2 (2015).
Lerner, Renee Lettow. "The Troublesome Inheritance of Americans in Magna Carta and Trial by
Jury." Magna Carta and its Modern Legacy 77-98 (Robert Hazell and James Melton eds.,
Cambridge University Press 2015) (2016).
Law Commission. "Contempt of court (1): juror misconduct and internet publications." (2013).
Levenson, Laurie L. "The Cure for the Cynical Prosecutors’ Syndrome: Rethinking a
Prosecutor’s Role in Post-Conviction Cases." Browser Download This Paper (2015).
Levine, Kate. "Who Should't Prosecute the Police." Iowa L. Rev.101 (2015): 1447.
Ouziel, Lauren M. "Legitimacy and Federal Criminal Enforcement Power." Yale LJ 123 (2013):
2236.

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Plener Cover, Aliza. "Hybrid Jury Strikes." Harvard Civil Rights-Civil Liberties Law
Review 52.2 (2017).
Reich, J. Brad. "Inexorable Intertwinement: The Internet and the American Jury System." Idaho
L. Rev. 51 (2015): 389-711.
Silberman, Linda J., Allan R. Stein, and Tobias Barrington Wolff. Civil Procedure: Theory and
Practice. Wolters Kluwer Law & Business, 2017.
Smith, Emma Jane. "Guilty of using Google: Reconciling the right to a fair trial with the right to
freedom of expression and addressing juror misconduct in the age of social media." (2014).
Sonenshein, David, and Charles Fitzpatrick. "The problem of partisan experts and the potential
for reform through concurrent evidence." Rev. Litig. 32 (2013): 1.
Taylor, Nick, and Judge Roderick Denyer. "Judicial management of juror impropriety." The
Journal of Criminal Law 78.1 (2014): 43-64.
White, Dillon Michael. Innocent Until Tweeted: How New Media Threaten an Old System, and a
Framework For Fixing American Courts. Diss. University of Minnesota, 2016.
Zalman, Marvin, and Ralph Grunewald. "Reinventing the Trial: The Innocence Revolution and
Proposals to Modify the American Criminal Trial." Tex. A&M L. Rev. 3 (2015): 189.