Piercing the Corporate Veil Doctrine

Güncelleme tarihi: 12 Nis 2020

Unlimited companies are found in many countries, whereas, the modern company law acknowledges separate legal personality of a limited liability company. “Limited liability principle” serves practical purposes in business life.

Giving a separate legal personality to a company is an essential incentive for entrepreneurs. Some of the advantages of having a separate corporate personality are; ease of change of membership, simple transfer of shares, perpetual succession which means that the death or illness of shareholders has no effect on the continued existence of the company. In case of bankruptcy, shareholders of company will be safe against the creditors with the limited liability principle. This, in turn, facilitated the development of large scale stock exchanges. A practical need arises when natural persons willing to deal with business and invest their capital into operative business entities while protecting their personal assets. Limited liability principle permits real persons to be protected from being directly accessible for their creditors, it means that once shareholders pays the price for their shares, they are not obliged to contribute any more to the company even if the company has not enough money to pay all its creditors. Thus, limited liability principle reduces pecuniary risks for shareholders. In other words, it may conceal real person’s liability and in some situations creates an obstacle for creditors. It also encourages risk taking on the part of management who know that the shareholders will not lose everything. In several jurisdictions, it is generally accepted that separate legal personality of a company has to be respected except where there is an abuse of corporate form. By lifting the corporate veil frequently to see what is underlying under the rock may create commercial uncertainty and undermine the advantages of separate legal form. However, the separate legal personality of a company might be used as a tool for economic abuse. In case of existence of a mere “façade” or “shell company”, lifting the corporate veil will be at stake as a necessity. However, this necessity is an exception, not a rule. The doctrine of “piercing the corporate veil” applies to variety of situations such as corporate groups, family companies and even companies which have just one shareholder (one-man company). As stated in “Report of the Reflection Group On the Future EU Company Law”, the international group of companies has become the prevailing form of European large-sized enterprises, which business activity is typically organised and conducted through a network of individual subsidiaries located in several States, the piercing the corporate veil doctrine is an actual and useful tool to held responsible parent companies instead of their local “mail-box” subsidiaries. Parent companies' managers tend to establish alter ego’s in different states for various reasons.

The existence of a corporate form is suitable for third party claimants who are able to sue the company without trying to identify shareholders of a company. This artificial form of companies is a double edged sword, it makes convenient for shareholders to hide themselves behind the corporate veil as well as it creates an accessible respondent for third party claimants. The critical question here is; can the third parties satisfy their needs by suing the company or the court should look through the veil to see who has the responsibility? It is more complicated when we face with multinational companies (MNCs). The reason is that MNCs are based in different areas of world with different names of companies and different separate corporations.

51 görüntüleme