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Piercing the Corporate Veil

Definition - What does Piercing the Corporate Veil mean?

Piercing the corporate veil is when the traditional limited liability of a company is suspended. This can happen if the directors of the company or other shareholders have participated in fraud, or other unlawful behavior. In these circumstances, the corporate veil of limited liability no longer protects those involved. This meas they can be held accountable for debts or other corporate liabilities.

Justipedia explains Piercing the Corporate Veil

One of the main incentives to form corporations is that they offer shareholders limited liability. In other words, shareholders are protected from being held personally accountable for corporate obligations and debts. However, if these powers are abused by people running the corporation, then they can be revoked.

If a company has accrued millions of dollars worth of debts while defrauding people then the corporate veil could be pierced and the shareholders could be forced to repay the debts themselves.

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