July 31, 2013 Articles

Trends in Piercing the Corporate Veil

The doctrine is a potent, albeit limited, exception to the general rule of corporate limited liability.

By Elizabeth S. Fenton

In law school corporations class, we all learned that corporations are artificial persons separate and apart from their shareholders. The default rule, as set forth in section 6.22 of the Revised Model Business Corporation Act, is that “[u]nless otherwise provided in the articles of incorporation a shareholder of a corporation is not personally liable for the acts or debts of the corporation except that he may become personally liable by reason of his own acts or conduct.” Historically, the purpose of this limited liability is to encourage democracy, entrepreneurship, and innovation. The origins of this principle date back to the nineteenth century, when New York led the way in mandating limited liability to encourage the entry of small entrepreneurs and investors into the marketplace.

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